Economics 1 - Summer 1996 - Olney - Final

Economics 1 - Summer 1996 - Olney - Final - ECON 1 Summer...

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ECON 1 Summer 96 Prof. M. Olney FINAL EXAM QUESTIONS COVERING MATERIAL SINCE THE SECOND MIDTERM 1. Suppose the Federal Reserve decides to conduct expansionary monetary policy through open market operations. a) Will the Fed's action require buying or selling government bonds? What effect will their action have on interest rates? Explain why. What effect will their action have on the Money Supply M1? Explain why. b) Suppose $10 billion in bond transactions are conducted by the Fed. Suppose the required reserve ratio is 11 percent, banks hold no excess reserves, and all money is held in checking accounts. By how much will the Money Supply change? Show your work. 2. Define the inner-city as the economy. Imports into the inner-city include not only the goods and services that city residents purchase in the suburbs, but also the value of the labor services (wages and salaries) earned by people who work in the city but live in the suburbs. Exports from the inner-city include goods and services the suburban residents buy while they are in the city.
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