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Unformatted text preview: 180.101 Principles of Macroeconomics, Fall 2011 Final Exam : Practice Problems 1. Granting your oddly specific wish, a genie magically creates a suitcase containing four hundred pennies, four quarters, five thousand $100 bills, and a check from the Fed for ten thousand dollars payable to cash. (a) How much currency did the genie give you? And how much M1? (b) If you also have a debit card with a $2000 limit, a $1 million savings deposit, and a credit card with a $200 credit limit, what is your total quantity of M2? (c) If you owe $2005 to Johns Hopkins University for tuition, what is your net worth? (d) In a fit of generosity, you give the suitcase to your best friend, who deposits all of its contents at Bank A. If the required reserve ratio is 5%, explain how the money supply will be affected (in total). What is the deposit multiplier in this question? 2. Explain the following concepts. (a) Explain what it means for a bank to be reserve deficient. What must a bank do if it finds itself in this situation? (b) Explain what economists mean when they refer to banks acquiring earning assets. Give some examples of earning assets, and explain why banks would want them. 3. Suppose the budget is defined as given in class: Bud = G + TR + InP- TX ....
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- Fall '08