Practice_Final_all_-_answers_[1]

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

Info iconThis preview shows pages 1–4. Sign up to view the full content.

View Full Document Right Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: Practice problems for the final Econ 100 1) Lets say that in some economy there are: (in billions) $100 in cash registers $20 in peoples 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 peoples wallets + $300 in checking accounts + $7 in travelers checks = $427 billion = size of M1 + $100 in cash registers + $20 in peoples 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. 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 $840 million 6) Heres real GDP for three economies (2000$) 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)...
View Full Document

This note was uploaded on 09/08/2011 for the course ECON 100 taught by Professor Pgking during the Spring '08 term at S.F. State.

Page1 / 19

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

This preview shows document pages 1 - 4. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online