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.