Econ Tutorial
|ECON1220 |Principles of Macroeconomics |2012-2013 |
|Sections 001-004 |Tutorial Exercise 5 |2nd semester |
Short-Answer Questions
1. Suppose you deposit $1,000 at your bank, and the required reserve ratio (r) is 10%. Furthermore, assume that banks do not hold any excess reserves, and that the public do not hold any cash. Explain the money creation process that follows due to your initial deposit of $1,000, and calculate the maximum amount of money that can be created.
2. Suppose, as in Q.1, you deposit $1,000 at your bank, and the required reserve ratio (r) is 10%. Assume again, as in Q.1, that banks do not hold any excess reserves. However, now assume that the public hold half of their money as cash and half of their money as deposits. Explain the money creation process that follows due to your initial deposit of $1,000, and calculate the maximum amount of loans that can be created.
3. What is the basic objective of monetary policy? What are the major strengths of monetary policy? Why is monetary policy easier to conduct than fiscal policy?
4. Refer to the accompanying table for Moola to answer the following questions.
[pic]
a) What is the equilibrium interest rate in Moola? b) What is the level of investment at the equilibrium interest rate? c) Is there either a recessionary output gap (negative GDP gap) or an inflationary output gap (positive GDP gap) at the equilibrium interest rate, and, if either, what is the amount? d) Given money demand, by how much would the Moola central bank need to change the money supply to close the output gap? e) What is the expenditure multiplier in Moola?
Multiple Choice Questions
1. If the price index rises from 200 to 250, the purchasing power value of the dollar: A. will rise by 25 percent. B. will rise by 20 percent.
|Sections 001-004 |Tutorial Exercise 5 |2nd semester |
Short-Answer Questions
1. Suppose you deposit $1,000 at your bank, and the required reserve ratio (r) is 10%. Furthermore, assume that banks do not hold any excess reserves, and that the public do not hold any cash. Explain the money creation process that follows due to your initial deposit of $1,000, and calculate the maximum amount of money that can be created.
2. Suppose, as in Q.1, you deposit $1,000 at your bank, and the required reserve ratio (r) is 10%. Assume again, as in Q.1, that banks do not hold any excess reserves. However, now assume that the public hold half of their money as cash and half of their money as deposits. Explain the money creation process that follows due to your initial deposit of $1,000, and calculate the maximum amount of loans that can be created.
3. What is the basic objective of monetary policy? What are the major strengths of monetary policy? Why is monetary policy easier to conduct than fiscal policy?
4. Refer to the accompanying table for Moola to answer the following questions.
[pic]
a) What is the equilibrium interest rate in Moola? b) What is the level of investment at the equilibrium interest rate? c) Is there either a recessionary output gap (negative GDP gap) or an inflationary output gap (positive GDP gap) at the equilibrium interest rate, and, if either, what is the amount? d) Given money demand, by how much would the Moola central bank need to change the money supply to close the output gap? e) What is the expenditure multiplier in Moola?
Multiple Choice Questions
1. If the price index rises from 200 to 250, the purchasing power value of the dollar: A. will rise by 25 percent. B. will rise by 20 percent.