Assignment 4 Solution

Assignment 4 Solution - Econ 500 Fall 2011 Z. Janko...

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1 DEPARTMENT OF ECONOMICS Econ 500 – Money and Banking Fall 2011 Assignment 4 – Answer Key There are 12 multiple choice questions on this assignment, many of which require calculations. Take your time answering these questions. I will grade all questions. For each incorrect multiple choice question, I will take of 2.5 points. If you do not provide work for the questions that need to show work (see below), I will take off additional 2.5 points per question (or just 2.5 points if the answer is correct). Circle the best answer. When uncertain, choose the best answer possible. Multiple Choice CHAPTER 17 There are 4 questions that require that you show work. In other words, you need to provide complete calculations that show how you arrived at the answer. 1. The deposit multiplier in the simple model is equal to 4 when the required reserve ratio is equal to a. 0.25 b. 0.40 SHOW WORK! c. 0.05 d. 0.15 The deposit multiplier is equal to 1/r in the simple model. Since 1/r=4, it means r=0.25. 2. The monetary base is comprised of a. Currency in circulation and deposits b. currency in circulation and government securities c. Currency in circulation and reserves d. Reserves and government securities 3. A sale of government bonds by the FED (choose the best answer!) a. Is called an open market sale b. Reduces the monetary base, all else the same. c. Increases currency in circulation, all else the same. d. Does all of the above. e. Does only a) and b) above. 4. If the FED lends out $50 to banks (i.e. discount loans increase by $50) then a. Reserves increase by $50 and MB increases by $50 b. The BR increases by $50 and MB increases by $50 c. The MB nb increases by $50 and MB increases by $50 d. Both a and b are true Econ 500 Fall 2011 Z. Janko
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2 5. According to the simple model (where r=10%), if the FED lends out $50 to banks (i.e. discount loans increase by $50) then a. MB increases by $50 and the M S increases by $50 b. BR increases by $50 and the M S increases by $500 c. MB nb increases by $50 and the M
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Assignment 4 Solution - Econ 500 Fall 2011 Z. Janko...

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