in class questions for test 3

# in class questions for test 3 - C H A P T E R 13 1. Which...

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Unformatted text preview: C H A P T E R 13 1. Which of the following functions of money would be most affected if inflation were high? a. Medium of exchange b. Store of value c. Certificate of gold d. Unit of account 2. If a person takes \$100 from his/her piggy bank at home and puts it in his/her savings account, then M1 will ______ and M2 will _____. a. Not change; increase b. Decrease; increase c. Decrease; not change d. Increase; increase e. Increase; decrease Currency dec M1 dec Savings inc M2 no change 3. Imagine that Kristy deposits \$10,000 of currency into her checking account deposit at Bank A and that the required reserve ratio is 20%. As a result of Kristys deposit, Bank As reserves immediately increase by a. \$50,000 b. \$8,000 c. \$2,000 d. \$10,000 Deposit in \$10,000 Reserves inc \$10,000 Required serserves = .20 x \$10,000 = \$2,000 Excess reserves = \$8,000 Assets Liabilities Reserves +7,000 Deposits \$50,000 Loans +\$46,000 Net worth \$3,000 4. Consider the following simplified balance sheet for a bank: if the required reserve ratio is 10%, the bank can make a maximum loan of ER? a. \$2,000 Reserves = 7,000 ER = RR = .10 Deposits = 50,000 Required reserves = 0.10 x 50,000 = 5,000 ER = 7,000 5000 = 2,000 can loan all of their ER 5. If during a deposit expansion, not all money gets redeposited into the banking system and some leaks out as currency, then the real world multiplier is a. Equal to 1/RR b. Larger than 1/RR c. Not related to 1/RR d. Smaller than 1/RR We hold more currency (banks hold more ER) 6. Suppose Warren Buffet withdraws \$1 million from his checking account at Chase Manhattan Bank. If the reserve requirement ratio is 0.2. what is the maximum change in deposits in the banking system? a. \$5 million b.-\$4 million c.-\$200,000 d. \$5 million e.-\$5 million checking deposits = reserves x 1/RR = -1 x 1/(0.2) Change in money supply? = checkcurrency-4 = -5 + 1 7. If the central bank can act as a lender of last resort during a banking panic, banks can a. Satisfy customer withdrawal needs and eventually restore the publics faith in the banking system b. Borrow more and more money from the central bank, and this will lower its reserves and decrease the publics faith in the banking system. c. Call in their loans to their customers and eventually restore the publics faith in the banking system d. Encourage the public to borrow directly from the central bank, and this will worsen the banking panic....
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## This note was uploaded on 04/27/2010 for the course ECON 2010 taught by Professor Roussel during the Spring '08 term at LSU.

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in class questions for test 3 - C H A P T E R 13 1. Which...

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