final_sample1 - Page 1 out of Principles of Macroeconomics...

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Page 1 out of Principles of Macroeconomics Final Sample Test Name W# 1. Which of the following involve(s) the buying and selling of government securities to control the money supply a. Discount policy b. Reserve requirements c. #Open market operations d. None of the above 2. How does the quantity theory provide an explanation about the cause of inflation? a. The quantity equation shows that if the money supply grows at a slower rate than real GDP, then there will be inflation b. The quantity equation shows that if the money supply grows at a slower rate than nominal GDP, then there will be inflation c. #The quantity equation shows that if the money supply grows at a faster rate than real GDP, then there will be inflation d. The quantity equation shows that if the money supply grows at a faster rate than nominal GDP, then there will be inflation 3. How do banks create money? a. by printing money b. #by lending out some of their deposits c. by purchasing government treasury bonds and thus putting money back into the circulation d. none of the above. Banks do not create money. Banknotes are printed by the Treasury. The next XX question are based on the following setup. Suppose you deposit $1000 into your checking account at a branch of Bank of America, which we will assume has no reserves at the time you deposit. Also assume that the required reserve ratio is 10%. Y Bank of America Assets Liabilities Change in reserves ________ Change in loans ___________ Change in deposits _____ 4. What is the change in reserves of the Bank of America a. +$10,000 b. -$10,000 c. #+$1,000 d. -$1,000 5. Suppose the Bank of America makes the maximum loan they can from the funds you deposited. Now suppose that whoever took out the loan makes a deposit in a branch of Citibank. What will happen to Assets and Liabilities of the Citibank? Citibank Assets Liabilities Change in reserves ________ Change in loans ___________ Change in deposits _____ a. #Assets (reserves) will increase by $900 and liabilities (deposits) will increase by $900 b. Assets (reserves) will increase by $900 and liabilities (deposits) will decrease by $900 c. Assets (reserves) will decrease by $900 and liabilities (deposits) will increase by $900 d. Assets (reserves) will decrease by $900 and liabilities (deposits) will decrease by $900 Please, keep your eyes on your copy of the test and do not look in the direction of anyone’s test.
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Page 2 out of 6. If the required reserve ratio is 0.20, calculate the maximum increase in checking account deposits that will result from an increase in bank reserves of $2,000.
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This note was uploaded on 04/08/2012 for the course ADMS 2320 taught by Professor Rochon during the Spring '08 term at York University.

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final_sample1 - Page 1 out of Principles of Macroeconomics...

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