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# Practice_Final_all_-_answers_[1] - Practice problems for...

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Practice problems for the final Econ 100 1) Lets say that in some economy there are: (in billions) \$100 in cash registers \$20 in people’s wallets \$15 in ATMs \$30 in bank vaults \$300 in checking accounts \$150 in uncashed checks \$700 in savings accounts \$900 in balances on credit cards \$850 in unused credit on credit cards \$500 in time deposits \$400 in mutual funds \$7 in travelers checks What is the size of M1 and M2? + \$100 in cash registers + \$20 in people’s wallets + \$300 in checking accounts + \$7 in travelers checks = \$427 billion = size of M1 + \$100 in cash registers + \$20 in people’s wallets + \$300 in checking accounts + \$700 in savings accounts + \$500 in time deposits + \$400 in mutual funds + \$7 in travelers checks = \$2027 billion = size of M2 2) Lets say that a bank has \$20 million in reserves and \$80 million in deposits. What is their reserve ratio? If the required reserve ratio is 10%, how much excess reserves do they have on hand? reserve ratio = (20/80)*100 = 25% need to have on hand \$80 million x 10% = \$8 million excess reserves = \$20 million - \$8 million = \$12 million 3) Lets say I take \$3000 from under my bed and deposit it into a bank. Fill out this table to show how banks make money. Assume that the required reserve ratio is 5% and there is no currency drain.

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a) Deposit Amount Resulting Loan Increase in the Money Supply First Deposit \$3000 \$3000 x 95% = \$2850 \$3000 + \$2850 = \$5850 Second Deposit \$2850 \$2850 x 95% = \$2707.50 \$3000 + \$2850 + \$2707.50 = \$8557.50 Third Deposit \$2707.50 \$2707.50 x 95% = \$2572.13 \$3000 + \$2850 + \$2707.50 + \$2572.13 = \$11,130.63 And so on b) Who sets the reserve requirement ratio? The Federal Reserve 4) Lets say that: currency in circulation = \$14 million bank deposits = \$95 million reserves held by banks = \$11 million the currency drain exists What is the money supply? \$14 million + \$95 million = \$109 million What is the monetary base? \$14 million + \$11 million = \$25 million What is the money multiplier? \$109 million/\$25 million = 4.36 5) Assume that the money multiplier is 2.1. Now lets say that that the Fed buys \$350 million in Treasury Bills from a commercial bank. What is the change in the money supply? Does it increase or decrease? 2.1 x \$350 million = \$735 million = money supply increases by \$735 million Now lets assume that the Fed sells \$400 million in Treasury Bills to a commercial bank. What is the change in the money supply? 2.1 x -\$400 million = -\$840 million = money supply decreases by \$840 million 6) Here’s real GDP for three economies (2000\$) in trillions.
La La Land Kramerville Flatland Year 1 Q1 1.1 4.3 2.7 Year 1 Q2 1.1 4.2 2.8 Year 1 Q3 1.2 4.2 2.7 Year 1 Q4 1.1 4.1 2.6 a) During this time, using the standard definition of a recession, which of these economies were in a recession? (Circle all that apply) La La Land / Kramerville / Flatland b) During this time, using the NBER definition of a recession, which of these economies were in a recession? (Circle all that apply) La La Land / Kramerville / Flatland 7) Lable this graph. Make sure to include at least: one peak one trough one full business cycle one recession one expansion 8) Finish this table Trough Peak Expansion Recession Business Cycle Real GDP / Potential GDP Time Potencial GDP Real GDP Year Nominal GDP (\$ billions) Real GDP (billions 2005\$) GDP deflator

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9) In a world without taxes, trade, and inflation, if consume spending rises by \$13 billion
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