Test Questions
Graphs
Monetary Policy
Banking
Anything can happen
100
Assume that Linda deposits in her checking account the $1,000 cash she was keeping at home for an emergency. If the required reserve ratio is 0.20, what is the maximum change in the money supply from her deposit?
$4,000
100
Draw a Money Market graph and show what happens if there is an overall increase in income in the nation.
Right ward shift in MD
100
The 3 Monetary Policy actions in a Limited Reserve System.
Reserve Requirement
Discount Rate
Open Market Operations.
100
What type of Banking system do we have in the USA? And how does this banking system create money?
Fractional reserve banking
Loan out money
100
The relationship between bond price and interest rates
There is an inverse relationship
200
Assume that in a banking system in which banks hold no excess reserves, the public holds part of its money in cash and the rest in checking accounts. If the required reserve ratio is 10 percent, actual reserves are 10million,and currency in circulation is equal to 20 million, M1 will be equal to
$120 million
200
Draw the Loanable funds graph and show what happens if there is an increase in Government Debt?
What happens to real interest rates.
Leftward shift in Supply or Rightward shift in Demand. (Higher Real Interest rates is the answer)
200
The one Monetary Policy Action in Ample Reserves.
Change in Policy Rate.
200
25000
200
Who has a comparative advantage in making cars?
Country Y
300
Assume that the economy is in equilibrium. If aggregate demand increases, nominal interest rates and bond prices will most likely change in which of the following ways?
Nominal Interest Rates Bond Prices
Increase Decrease
300
Draw the Reserve Market Graph in Limited Reserves. Show what happens if the Central bank Buys bonds.
Supply of Reserves is in the downward sloping part of the graph and shifts right.
300
In ample reserves how can you have expansionary monetary policy?
Decrease Policy Rate
300
what is the money multiplier
5
300
Assume year 1 is the base year, what is the nominal and real GDP of year 2?
Nominal GDP= $280=(2*80)+(2*60)
Real GDP= $200= (1*80)+(2*60)
400
The aggregate demand curve is downward sloping because an increase in the general price level will cause the demand for money, interest rates, and investment to change in which of the following ways?
Demand for Money Interest Rates Investment Increase Increase Decrease
400
Draw the Money Market graph. In a limited reserve system what are 3 ways Nominal Interest rates can increase.
Reserve Requirement increases
Discount rate increases
Open Market Operations: Sell Bonds.
400
In Limited Reserves what are the 3 actions to have restrictive Monetary Policy?
Increase Reserve Requirement
Increase Discount Rate
Sell Bonds OMO
400
Ms. Smith withdraws $1,000 from her sage and deposits the money in a bank. If the bank holds no excess reserves and the reserve requirement is 10%, how will this deposit increase the bank's required reserves and the bank's loans?
RR= $100
Loans= $900
400
Draw a LRAS/SRAS/AD at full employment. What happens in the long run if there is an increase in Investment spending? Draw the new Equilibrium
AD shifts right
SRAS shifts right
LRAS Shifts right
500
An increase in inflationary expectations will most likely affect nominal interest rates and bond prices in which of the following ways in the short run?
Nominal Interest Rates Bond Prices
Increase Decrease
500
You are in an ample reserve system. Draw LRAS/SRAS/AD in an inflationary gap. What actions can the central bank do to get back to Full employment. Draw the Reserve Market Graph or the Money Market Graph and show the shift. Now show this shift on your Original LRAS/SRAS/AD graph.
Show inflationary Gap
Draw Reserve Market with Sr on the Flat part of the graph. Show a shift up in the policy rate.
Show a left shift in AD back to LRAS.
500
What is the difference between the discount rate and the federal funds rate?
discount rate is a loan from the central bank to the bank.
federal funds rate is loan from bank to bank.
500
Assume that in a banking system in which banks hold no excess reserves, the public holds part of its money in cash and the rest in checking accounts. If the required reserve ratio is 10 percent, actual reserves are $10 million, and currency in circulation is equal to $20 million, M1 will be equal to?
$120 Million
1/.1 x $10 million + $20 million
500
Draw that your economy is in an Inflationary Gap and your banking system is in Limited Reserves. What are the 3 Monetary actions the central bank can take AND both fiscal policy actions to get back to full employment?
Increase RR
Increase DR
Sell Bonds OMO
Increase Taxes
Decrease Spending