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Question: 1 2 3 4 5 6 7 8 Answer: Part A. Multiple Choice Questions: Choose only one, most satisfactory answer for each question (6 points each). The...

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Question: 1 2 3 4 5 6 7 8 Answer: Part A. Multiple Choice Questions: Choose only one, most satisfactory answer for each question (6 points each). 1. The reserve-deposit ratio of the banks in a country is determined by: a) the country’s central bank. a) the country’s deposit insurance entity. b) business policies of the banks and the country’s laws regulating banks. c) preferences of the country’s households about the form of money they wish to hold. 2. An economy’s money supply is ________ to the average reserve ratio of its banks. a) unrelated b) directly related c) inversely related d) ambiguously related (directly or inversely, depending on the situation) 3. A bank’s balance sheet shows the following items: Deposits $1,000 Reserves $ 100 Securities $ 400 Debt $ 500 Loans $2,000 What is the value of the bank’s capital? a) –$1,000 d) +$500 e) +$1,000 f) +$1,500 4. In Canada regulators put a floor on bank leverage (capital to total assets) ratio of 5 percent. Suppose a Canadian bank has a leverage ratio of 6 percent and because of a downturn in the economy some of its borrowers default on their loans such that it loses 2 percent of its assets. What would be the bank’s leverage ratio after the defaults? a) 2 percent e) 3 percent f) 4 percent g) 5 percent 1
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5. The bank leverage ratios in the U.S. are much lower than in Canada. What is the implication of this differences in leverage ratios for the relative cost of intermediation and the stability of the banking systems in the two countries? a) The cost of intermediation and the stability of the banking systems are lower in the US. b) The cost of intermediation and the stability of the banking systems are higher in the US. c) The cost of intermediation is higher and the stability of the banking systems is lower in the US. d) The cost of intermediation is lower and the stability of the banking systems is higher in the US. 6. How does an exogenous increase in the expected future value of the dollar in terms of the euro shift the LM schedule if the real money supply and the real output remain unchanged? a) The shift in the LM curve depends on whether the country has a trade deficit or a surplus. g) The shift in the LM curve cannot be determined. h) The LM curve shifts downward. i) The LM curve does not shift. j) The LM curve shifts upward. 7. A short-run decrease in the Chinese money supply that has no impact on the expected future exchange rates leads to a) an appreciation of the yuan in the spot market. k) no change in the value of the yuan in the spot market. l) a depreciation of the yuan in the spot market. m) an appreciation of the dollar in the spot market. n) an decrease in the interest rate on yuan deposits. 8. How does an exogenous decrease in the expected future value of the yen in terms of dollar shift the LM schedule in Japan if the real money supply (i.e., money supply divided by the price level) and the real output of the economy remain unchanged? a) The shift in the LM curve depends on whether Japan has a trade deficit or a surplus. o) The shift in the LM curve cannot be determined. p) The LM curve shifts downward. q) The LM curve shifts upward. r) The LM curve does not shift. Part B. Short-Answer and Algebraic Questions: (The numbers in square brackets give the breakdown of the points for various parts of each question. To receive full credit, please explain your answers.) 9. This questions is based on the article, “ Signs of a slowdown ,” published by The Economist on June 6, 2015 (copied below). The article discusses the trends in the value of the yen and its consequences during 2012 and 2015. The average annual rate of inflation during 2013 and 2014 was 1.55 percent in both the US and Japan. 2
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Question: 1 2 3 4 5 6 7 8 Answer: a b A d d e a a Part A. Multiple Choice Questions:Choose only one, most satisfactory answer for each question
(6points each).
1. The reserve-deposit ratio of the...

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