ECO 372T Wk 5 – Apply: Quiz

(Advanced analysis) Assume the equation for the total demand for money is L = 0.4Y + 80 − 4i, where L is the amount of money demanded, Y is gross domestic product, and i is the interest rate. If gross domestic product is $200 and the interest rate is 10 percent, what amount of money will society want to hold?

Multiple Choice

144.

100.

120.

160.

200.

Item in Balance Sheet    Amount

1) Treasury Deposits      $7

2) Reserves of Commercial Banks 31

3) Federal Reserve Notes       275

4) Loans to Commercial Banks     3

5) All Other Assets 66

6) Securities   241

7) All Other Liabilities and Net Worth  7

The table shows items and figures taken from a consolidated balance sheet of the 12 Federal Reserve Banks. All figures are in billions of dollars. In this balance sheet, there would be assets of

Multiple Choice

$317 billion.

$309 billion.

$341 billion.

$310 billion.

A reserve requirement of 10 percent means a bank must have at least $300 of reserves if its checkable deposits are

Multiple Choice

• $3,000.
• $30.
• $300.
• $30,000.

Suppose a credit union has checkable deposits of $400,000 and the legal reserve ratio is 10 percent. If the institution has excess reserves of $8,000, then its actual reserves are

Multiple Choice

• $48,000.
• $32,000.
• $8,000.
• $40,000.

If nominal GDP is $800 billion and, on average, each dollar is spent four times in the economy over a year, then the quantity of money demanded for transactions purposes will be

Multiple Choice

• 3,200
• 200
• 800
• 600
• 400

Suppose a commercial bank has checkable deposits of $60,000 and the legal reserve ratio is 25 percent. If the bank’s required and excess reserves are equal, then its actual reserves

Multiple Choice

• are $30,000.
• are $15,000.
• are $1,500,000.
• cannot be determined from the given information.

Answer the question based on the following information for a bond having no expiration date: bond price = $1,000; bond fixed annual interest payment = $100; bond annual interest rate = 10 percent. If the price of this bond increases to $1,250, the interest rate will

Multiple Choice

fall to 1.25 percent.

rise to 12.5 percent.

rise to 18 percent.

fall to 8 percent.

fall to 2.5 percent.

A commercial bank buys a $20,000 government security from a securities dealer. The bank pays the dealer by increasing the dealer’s checkable deposit balance by $20,000. The money supply has

Multiple Choice

• increased by $20,000.
• decreased by $20,000.
• not been affected.
• increased by $20,000 multiplied by the reserve ratio.

Assume that Smith deposits $600 in currency into her checking account in the XYZ Bank. Later that same day, Jones negotiates a loan for $1,200 at the same bank. In what direction and by what amount has the supply of money changed?

Multiple Choice

• increased by $1,200
• decreased by $600
• increased by $1,800
• increased by $600

Refer to the graph. If the initial equilibrium interest rate was 5 percent and the money supply increased by $200 billion, then the new interest rate would be

Multiple Choice

3 percent.

1 percent.

2 percent.

4 percent.