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Problem+Set+_4 - Name(Last name first name SID GSI Econ...

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Name: _________________________ (Last name, first name) SID: _________________________ GSI: _________________________ Econ 100B Macroeconomic Analysis Professor Steven Wood Spring 2010 Problem Set #4 Due: April 1, 2010 (at the beginning of class) Please sign the following oath: The answers on this problem set are entirely my own work. I neither copied from the work of others nor allowed others to copy from my work. _______________________________________ Signature Any problem set turned in without a signature will be assigned a grade of zero. Problem Set Instructions 1. When drawing diagrams, clearly and accurately label all axis, lines, curves, and equilibrium points. 2. Graphs and equations MAY be drawn by hand. 3. Explanations MUST be word-processed. Your explanations should be succinct and to the point. Problem Set #4 1/12
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A. Multiple Choice Questions (30 points) . Circle the letter corresponding to the best answer. (3 points each.) 1. Assume that the currency holding ratio is 0.40, the required reserve ratio is 0.25, and the excess reserve ratio is 0.05. The Federal Reserve carries out open market operations, purchasing $1 billion worth of bonds from commercial banks. This action will increase the money supply by: a. $1 billion. b. $2 billion. c. $3 billion. d. $4 billion. 2. Suppose there is a banking crisis. The money supply would shrink by the greatest amount if the public _______ their currency holding ratio and the commercial banks _______ their excess reserve ratio. 3. In the Keynesian model, suppose the Federal Reserve sets a target for the money supply. If the IS curve shifts to the left, and the Fed wants to keep output unchanged, then the Fed should: 4. Which of the following statements would a monetarist DISAGREE with? 5. According to the Taylor rule, if inflation in the past year was 6% and output was 2% below its full-employment level, the nominal federal funds rate should be: a. 3%. b. 5%. c. 7%. Problem Set #4 2/12
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d. 9%. 6. There is a _______ relationship between inflation and central bank independence and _______ relationship between long-run rates of unemployment and central bank independence.
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