1)federal funds rate is the interest rate at which banks can borrow and lend _____ in the _____market.

A. investment funds; loanable funds

B. equity funds; stock

C. reserves; federal funds

D. reserves; mutual funds

2)The amount by which government purchases and transfers exceed tax revenues is known as the:

a. primary surplus

b. primary deficit

c. current deficit

d. government debt

1)

• The correct answer is C. reserves; federal funds

The federal funds rate is the interest rate at which banks can borrow and lend reserves in the federal funds market.

The Fed sets a reserve requirement as a percentage of the assets a bank has. At the end of every day, the bank must show the Fed that the requirement has been met. If necessary, a bank that lacks reserves can borrow funds from a bank that has excess reserves. The Fed sets the rate for banks to borrow and loan reserves, and it is called the federal funds rate.

2)

• The correct option is b. Primary Deficit.

The primary deficit can be stated as the shortage of government funds to meet the government spending. Mathematically, it can be measured by:

Primary Deficit = Total Expenditure - Total Receipts of revenue - Interest paid on the debt.

Thus, the primary deficit shows the sum of money by which the government purchases and transfers are higher than the total tax revenue collected.