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Suppose that the reserve requirement is 5%. What is the effect on the total checkable deposits in the economy if banks reserves increased by $60 billion? The formula for the simple deposit multiplier is? (Related to Solved Problem # 1) Suppose that simple economy produces only the following goods and services; shoes, hamburgers, shirts and cotton. Further, assume that all of the cotton is used in the production of shirts. Use the information in the following table to calculate Nominal Gross Domestic Product ( NGDP) for 2015. Why might cutting government spending as a fiscal policy be a more difficult policy than the use of the monetary policy to slow down an economy experiencing inflation? The legislative process works quickly The government has more concentrated power than the Fed The economy may have already slowed The Legislative process experiences longer delays than monetary policy Suppose that Deja owns a McDonald’s franchise. She decides to move her restaurant’s checking account to Wells Fargo, which causes the changes shows on the following T-account Reserves: -$100,000 Deposits: $100,000 If the required reserve ratio is 0.05 percent and Wells Fargo currently has no excess reserves, the maximum loan Wells Fargo can make as a result of this transaction is (related to solved problem #3) Suppose the information in the following table is simple economy that produces only the following four goods; shoes, hamburgers, shirts and cotton. Further, assume that all of the cotton is used to produce shirts. Suppose the economy is initially in long run equilibrium. The Fed enacts a policy to decrease the discount rate. In the short run, this expansionary monetary policy will cause; A shift from SRAS to SRAS2 and a movement to point B, with a lower price level and higher output. A shift from AD1 to AD2 and a movement to point B, with a higher price level and a higher output. A shift from SRAS2 to SRAS1 and a movement to point D, with a higher price level and a lower output. Shift from AD2 to AD1 and a movement to point C with a lower price level and the same output. Excess Reserves Are the deposits that banks do not use to make loans Are loans made at above market interest rates Are reserves banks keep to meet the reserves requirement Are reserves banks keep above the legal requirement A simple economy produces two goods, Apple pies and software. Price and Quantity data are as follows; Consider the following table; What can we expect from the Federal Reserve Bank if it seeks to move the economy in the direction of a long run macroeconomics equilibrium? The Fed will pursue an expansionary fiscal policy The Fed will pursue a contractionary monetary policy The Fed will pursue an expansionary monetary


policy The Fed will pursue a contractionary fiscal policy What will happen to the showing indicators? Actual Real GDP; Potential Real GDP; Price Level; Unemployment Suppose you deposit a $800 cash into your checking account; By how much will the total money supply increase as a result when the required reserve rate is 0.10? The Federal Reserve cannot affect Real GDP directly, therefore, the Fed typically uses the following as its policy target? Inflation Government expenditures Taxes Interest rates If the Federal Reserve purchases $130 million worth of US treasury bills from the public, the money supply will The unemployment rate; Shows the percentage of the population that is considered unemployed. Is the amount of the labor force that is not working Is the amount of people in the population that are not working Shows the percentage of the labor force that is considered unemployed. When the Federal Reserve increases the discount rate as a part of a contractionary monetary policy, there is; A decrease in the money supply and an increase in the interest rate A decrease in the money supply and a decrease in the interest rate An increase in the money supply and a decrease in the interest rate An increase in the money supply and an increase in the interest rate Suppose the economy is in long run equilibrium, the Fed decides to increase the discount rate, in the short run, this contractionary monetary policy will cause; A shift from SRAS 1 to SRAS2, and a movement to point A, with a higher price level and same output A shift from SRAS 2 to SRAS 1 and a movement to point B, with a lower price level and a higher output A shift from AD2 to AD1 and a movement to point D with a lower price level and lower output A shift from AD1 to AD2 and a movement to point B with a higher price level and higher output According to the multiplier effect, an initial decrease in the government purchases decrease the real GDP by initial decrease in government purchases. In an economy, the working age population is 300 million of this total; 240 million workers are employed 9 million workers are unemployed 42 million workers are not available for work (homemakers, full time students, etc) 6 million workers are available for work, but are discourage, and thus are not seeking work 3 million workers are available for work but are not currently seeking work due to transportation and child care problems. The unemployment rate in this economy Suppose you deposit $1,000 cash into your checking account, By how much will checking deposits in the banking system increase as a result when the required reserve ratio is 0.40% The change in checking deposit is equal Suppose the government increases expenditures by $110 billion and the marginal propensity to consume is 0.80 . By how will equilibrium GDP change? The change in equilibrium GDP

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