Multiple choice problems regarding Federal funds rate, Overnight loans, Labor income also GDP.

1. When the interest rate rises, the:

a) Quantity of money demanded decreases.

b) Demand for money decreases.

c) Demand for money increases.

d) Quantity of money demanded increases.

2. The federal funds rate is the interest rate:

a) Banks charge each other on overnight loans.

b) On the 3-month Treasury bill.

c) On the 30-year treasury bond.

d) Also known as the prime rate.

3. Looking at the supply-side effects on aggregate supply shows that a tax hike on labor income:

a) Increases the incentive to work.

b) Decreases potential GDP.

c) Increases potential GDP because people work more to pay the higher taxes.

d) Both answers A and B are correct.