Quiz-2-Spring-1997 - 53105 "» L13 HA I” o 1.....

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Unformatted text preview: 53105 "» L13 HA I” o 1.. “main Fri-cos at Four “so-Year Liter-.fiL‘ ,. 1 _ inflfi. 190:3 “(L-‘0 -9/3 $13.00 “903 \ According to Table 23-2. what was the value of a’pair of jogging shoes in 19'?" measur- dollars? , ' - a. $18.25 _ ~ _ :- 1 3“; 19.328 " 3L 9,549.94 u ' ' A ’7 v . 1 c. 558 " ‘ e. $93.20 Accordifig ‘0 Table 33-2. which decade had the fastest growth in current-dollar prices for jogging Shoes? :—.. 16434933 _ 5. 1958-1968 c. 1968—1973 -, — .3.) 19734933 A. e According to Table 13-2. which decade had :2 e ‘astest growth in constant-dollar prices for jogging shoes? 3. 19-38-1958 13:: 1958-1968 c. 1968-1978 :1. 1978-1988 A . The money creation formula is oversimplified because it assumes that :1. every recipient of a bank loan will redeposit the proceeds of that loan into another bank. b. every bank will hold zero excess reserves. _ c. loan recipients do not keep any of the proceeds from the loan 1n cash. All of the above are co . '7 ~55 - Excess reserves make a bank iess vulzmembie to runs, but bankers don’t like to hold excess reserves because 13': holding excess reserves means lower profits for banks. is. holding excess reservs is frowned on by bank examiners. c. holding excss reserves is indefensible to the bank’s stockholders if the economy is turning down. d. All of the above are correct. Tat-1e 234 Average Weeidy Earnings of- wgrkefi 1973 r , 5203.70 The C?! in 1987 dollars is 11 ted below for each year. : 24.1 3‘ J 2 1 : 23.9 f ‘ ‘1 : 34.8 1978: 65.2 1988:1205 In Table 23-4, which decade had the fastest growth of rnonev wages? a. 1948-1958 ,7“ a ,1 r . ’ 1; 1958-1968 L 1 ~ 2r 'c..1968~1978 * - '../ d. 193-1983 '7 7 ‘ in Table 23-4. which decade had the fastest growth of reai wageS? 1 La. 1948-1958 I, w b. 1958-1968 W132i c. 1963-1973 :1. 1978-1983 From 1978 to 1988, what happened to the real wage of 3 workers? {See Table 13—1.) a. It increased by 15 percent. .1 '3‘ i b. It was virtually the same in 1988 as in 1978. t " " ‘ 73 ‘ 1 dilt decreased by '13 percent; . 1 1/ d. It decreased by 3 percent- - T‘ne Macro-Easy National Bank bass; 31111131131; reserves and 58.5 nfiilionflingtherassets- Its check- ing deposits are 56 million, other liabiiines and net worth $4.5 million. Tne Iv‘iacro-Easy National Bank wants to expats-dies ioans. With a required reserve ratio of 10 percent, what is the maximum levei of new loans this bank can safer create? a. 510.4 million 11 e ’2, - C. 33:51.4 million :5 S Lt -S c. 51.2 million >_.—-—-—- f“: o 3 d. 5.5 nulhon ‘ . . a. zero If a bank has 51.5 inii‘sion in reserves and checking deposits of 54 million, what is the bank's reserve position if the required reserve ratio is 20 percent? a. Tne bank has $300,000 of required reserves and $1,200,000 of excess reserves. 1:. The bank has $300,000 of required reserves and $3,700,000 of excess reServes. @The bank has $800,000 of required reserves and $700,000 of excess reseges. d. The bank has $800,000 of required reserres and $3,200,000 of excess reserves. fit 1 1 * Barter is a system of a. trade with one good being traded directly for another._ is. double coincidence of wants. ;. :‘ade without using money as an intermediate step. g1) All of the above are correct. Ta'glg 20-1 Bank of Macroiand Balance She! December 31, 1993 Required Reserve Ratio = 10 percent ASEETS LlA BlLlTlES km: N'ET WORTH Assets . _ Liabilities _ Reserves 300,000 Checldng deposits 5 7.000.000 Loans '7 if: _ ' ' - g I outstanding _ 7.500.000 Other-liabilities 2.500.003 [Other asses _ 2.0mm) ' Net Worth Stockholders’ equity 500,000 Total 510,000,000 Total $10,000,000 \: 12 ' In Table 29-1, the required reserves for the Bank of Niacroland are . Required reserve ratio = 10 percent. {ST-$700,000 - . In Table 29-1, the of Macroland can prudently [email protected] equal to a. $700,000 " ' ' ' ' . b. $500,000 c.5200,000 -— -. _ _ 4— 151001300 ' ' ' :e)_zero From Table 29-1 (with a required reserve ratio of 10 percent), calculate the change in the money supply for the nation’s banking system. _ a. $2,503,030 b. 52300300 _ sazwwo x , 1L c.51.000.000 - y” .-51,ooo,ooo W“ “ r8. '5;er a 6 15 ' Assume the required reserve ratio is 25 percent and the.— orders an open market purchase of $200 million in US. government securities from the nation’s banks. If the banks do not want to hold excess reserves and the public does not want to hold additional cash, then a. the money supply will contact $200 million. ’3. the money supply will expand 520’.) million. fithe money Supply will contract $800 million. :3 .‘Jthe money supply will expand $800 million. '. 15 ‘ 1f the- : 2 orders a sale of government securities in the open market. then @bankreserves are reduced and a multiple contraction of the money supply Occurs. ‘ . '9 bank reserves are reduced, but the money mpply will be maintained at the previous level if the banks call in some outstanding loans. bank reserves are increased and a multiple expansion of the money supply occurs. 3. bank reserves are increased, but a multiple expansion of the money supply is unlikely unless the economy is in a deep recession. 7 fl 7 ' . You purchased a bond in 1.985 for 511,900 thatopays $130 pier vear interest. if you sell the bond for ‘ t ’ 5500, the purchaser will earn an effecn've interest rate of . 7i 3 percent . i b 6 percent , 7 . Ah 1 ‘ , ‘lOpercent ‘. ;. I '_‘A C§ (>960 Wig: co .- n90 w r—* X ” BAD perc r 1 a . . . . . . . . flax [K “‘3 ' V'lhe renauonshtp between oond prices and interest rates is C -' u 5‘. when bond prices fall, interest rates rise. J gr,“ ’6. when bend prices rise. interest rates rise.’ c. when interest rates rise, bond prices rise: d. None of the ab0ve is correct. 19 v if the Federal Reserve lowers the required rserve ratio, “a a. total bank reserves will increase, ' ,‘ ' 7- ' 23. total hank reserves will decrease. ' ' o .MZ‘Trq—H - ‘ - nefcess reserves will increase. - ‘d’. excess reserves will decrease. W20 - if the Fed wants to give banks more reserves. it can “-- a. sell securities in the open marketed. ' b. raise the required reserve ratio. ‘ we Slower the discount rate. ' -_ “d. raise the federal funds rate. J e. All of the above are_correct 21 ‘ Banks will hold substantial excess reset-res when a. loans to customers look safe and when interest rates are lugh. \: b. the economy is booming and there is a great demand for business loans. loans to customers look unusually risky or if interest rates are very lo w. .1 d. they anticipate a bank audit. 2-2 ' The demand for money r a; will fall if the price level rises. ‘q..will rise as real GDP rises. 7:. will fall as real GDP rises. d. does not depend on real GDP or the price level. P": 43 I The interest rate is the opportunity cost of holding money balances. ‘ b. does not influence the quantity of money that people demand. :3 falls when bond prices fall. d. inc-eases when the money supply increases. a.“ The effect of monetary policy on aggregate demand depends on [at the sensitivity of interest rates to the money supply. the responsiveness of investment Spending to .‘ L the interest rate. I :X- c; the size of the multiplier. All of the above are correct. ,.v ~25 ‘ Open market purchase of bonds by the Fed causes a__._ the money supply to fall and bond prices to go up. \‘lgythe money supply to rise and bond prices to go up. c. the meney supply to rise and bond prices to go down. :1. the money supply to fall and bond prices to go down. Table Ell-I EECTS OF AN OPEN-MARKET TRANSACTEON ON THE BALANCE SHEETS OF BANKS AND Tl-E FED (In millions of dollars) BANKS EDERAL RESERVE SYSTEM ASSETS ' . ASSETS LIAB. Resen'es +516" .' - - ' us. Gov’t Bank U5. (3th Sec. +5107 Res. +510 Woes ~S‘lO 25 ' (Jnl'able 30-l, the Federal Reserve System has SlO million of US. government securities from banks, paying for them with an increase in member bank reserves. 7 . b. sold 510 million of U.S. government securities to banks. Eking payment from the bani-6’ reserves. c. purchased 510 million of US. government Securities from banks, nay'ing for them in Federal Reserve notes. d. sold $10 million of U5- gavemment securitis to banks, taking payment in cash. 27 ' in Table 30-1, if the required reserve ratio for banks is 20 percent, what will happen to the money supply? Assume that banlc do not hold excess reserves and that the public does not wish to hold additional cash. a. The money supply will decrease $50 million. b. The money supply will decrease $10 million. @1112 money supply will increase 550 million. 3’. The money supply will increase 5'10 million. e. The money supply will increase 540 million. After the transaction In,’l"able 30-1 is completed, what happens to the actual reserves, required reserves, and excess reserves of the banking system? Assume the required reserve ratio is 20 per— cent. @Acmal reserves increase $10,miflion. required reserves increase 32 million, and excess reserves increase 58 million. ' _ ' b. Actual reserves decrease SlO trillion, required raerves decrease $2 million, and excess reserves decrease $8 million. -:. Actual reserves decrease $10 million, required reserves are unchanged, and excess reserves “decrease 5‘10 million. ' «\iirAcrual reserves increase 510 million. required reserves are unchanged, and excess reserves increase 510 million. - in what way do policy makers have to face up to a trade-off between inflation and unemployment? a. The cost of reduc‘ng inflation by restrictivefiscal and monetary policies is a permanent rise in unemployment. @Il'he cost of reducing inflation by restrictive fiscal and monetary policies is a temporary rise in unemployment _. c. The cost of reducing unemployment by expansionary fiscal and monetary policies is virtually nonexistent. ‘ d. The inflationary cost of reducing unemployment by expansionary fiscal and menetary policies is higher in slack times than in boom times. 30 ' If workers and firms forecast inflation accurately, a. the real wage will not decline as the price level rises; . ’0. workers will not lose from inflation, and firms will not gain. :- gthe aggregate supply curve will be vertical. {\d/‘All of the above are correct. u.’ it Figure 33-2 is) illusu'ates the elimination of a recessionary gap, then the economy should move to what point on the curves shown in Figure 33-2 (in)? a.fromgtoj b.l'rornetor F“. O _c,from rto m d.from rtoj If the economy in Figure 33-2 (in) is experiencing an infla- tionary gap (point 3), the natural self-cor- recting process will move unemployment to __ and inflation to 7‘/ cent c. 4 percent; 7’ percent CI. 5.5 percent; 5 per- cent b. in the short run, it Price Level Figure 33-2 {b} illustrata that _ I a. the Phillips curve connecting points is possible to "ride up the Phillips curve" toward lower unemployment bv stimulating aggregate demand. "film the short run, it is possible to “ hNflJAll of the above are correct. 34 I ' if the short-run Phillips curve is vertical, a. fighting inflation will always cause a recession. (.3 UI To} it would be possfole for inflau'on to fall without on c. to bring inflation down from 5 percent to 2 percent. recession. cl. expansionary fisral unemployment. U Potential GDP employment rising. the economy would have to endure a long (percent) 1 (b) [ "—— FlGURE 33-2 ride down the Phillips curve" toward lower rates of inflation. and monetary policies would lower inflation without creating additional An important social cost of inflation is a. that the general wage level fails to stay abreast of inflation. 3:. that prices of finished goods rise but COREYECS. ‘g'._' the capricious rediso-ibution of income caused q \ $23.11 of the above are correct. Why do many economists oppose indexing? '3; They fear indexing will accelerate inflation. c. They prefer the o o. They question the government’s ability to appl peraoon of a free market. ev dim] of the above are correct. ‘then fluctuations in economic activi .3;- unemployment and b. unemployment and inflation will have a c. prices will fall when real output grows d. the government will -—... . . by unexpected inflation. ty emanate from the demand side,. inflation will be inversely related. positive relationship. rapidly. not have the ability to influence inflation or unemployment. prices of raw materials are held constant by long-term y indexing techniques fairly and equitably. en if it is plagued by inflation. One common mistake is to confuse nominal and real interest rates. One result that the economy can have high nominal rates and low real rates at the same time. hig'i nominal rates and negative real rates at the same time. low nominal rates and high real rates at the same time. of inflation is /_\ “70 (3/ . All of the above are correct. i;-. fit. {' b..‘ ‘-_-’ c. I d. The illusion of high interest rates stems from confusing inflation with a change in relative prices. the real with the nominal rate of interest. usury laws with rates of interstc' expected inflation with actual inflation. When the CPI is based on 1967 prices, a consumer price index of 265 in 1980 means that prices of consumer goods have gone up by 2.65 times. what cost $100 in 1967 cost 5255 in 1980. prices of consumer goods have more than doubled. All of the above are correct. If the unmployment rate is 6 percent and the number of persons unemployed is six million, then the number employed is 100 million. 94 :15le 106 million. also six million. In the first quarter of 1983, nominal GDP was $3.311 billion and real CDP was 515% billion, according to preliminary estimates. “Phase eso‘mates suggest that in the first quarter of 1983, ' the value of the a. b. ‘4 G. a. bl; a. A C?! was 215- CPI was 93. GDP deflator was 21'. GDP deflator was 93- lfthe population greater than 16 years of age is 150 million, the labor force is 110 million, and Mel employment is 98 million, then the unemployment rate is 8 percent. 34 percent. 11 percent. a. u percent. mum of the following people is structurallv unemplovecl? Brendan left his job as a soda jerk in New jersey to become a soda jerk in Madrid, New Menco; he was unemployed for six weeks during the transition. * Mildred quit her job after giving birth to a child. Clem. a skilled corset maker, lost his job when his factory shut down due to a permanent reduction m the demand for corsets. . Dwanella lost her job when the electronics assembly plant was shut clown temporarily due to low sales of the product. ' An increase in the reserve ratio tends to raise excess resentes and raise the money multiplier. lower excess resarves and raise the money multiplier. increase excess reserves and 1W multiplier. d. , lower excess reserves andlower the money multiplier. ...
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This note was uploaded on 02/28/2010 for the course ECON 212 taught by Professor Sandraalsaghir during the Spring '10 term at American University of Beirut.

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Quiz-2-Spring-1997 - 53105 "» L13 HA I” o 1.....

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