11. The following table is the consolidated balance sheet for the commercial ban
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Question
11. The following table is the consolidated balance sheet for the commercial banking system. All figures are in billions. Assume that the required reserve ratio is 10 percent:
Refer to the above information. The maximum amount by which this commercial banking system can expand the supply of money by lending is:
Select one:
a. $120,000 billion
b. $300,000 billion
c. $600,000 billion
d. $900,000 billion
14. If prices and wages are flexible, a decrease in aggregate demand will in the long run cause only a(n):
Select one:
a. Decrease in the price level
b. Increase in the price level
c. Increase in the unemployment rate
d. Decrease in real output
15.
Refer to the graphs above, in which the numbers in parentheses near the AD1, AD2, and AD3 labels indicate the level of investment spending associated with each curve, respectively. All numbers are in billions of dollars. The interest rate and the level of investment spending in the economy are at point D on the investment demand curve. To achieve the long-run goal of a noninflationary full-employment output Qf in the economy, the Fed should try to:
Select one:
a. Decrease aggregate demand by increasing the interest rate from 2 to 4 percent
b. Decrease aggregate demand by increasing the interest rate from 4 to 6 percent
c. Increase aggregate demand by decreasing the interest rate from 4 to 2 percent
d. Increase the level of investment spending from $120 billion to $150 billion
20.
Answer the question based on the following balance sheet for the First National Bank. Assume the reserve ratio is 15 percent:
Refer to the above data. First National Bank can make new loans of up to:
Select one:
a. $50,000
b. $41,000
c. $32,000
d. $27,000
25.
Refer to the graphs above, in which the numbers in parentheses near the AD1, AD2, and AD3 labels indicate the levels of investment spending associated with each curve. All figures are in billions. A shift in the aggregate demand curve from AD3 to AD2 can be achieved by Federal Reserve action to:
Select one:
a. Increase the reserve ratio
b. Increase the discount rate
c. Buy government securities in the open market
d. Sell government securities in the open market
Assets Liabilities Net Worth Reserves $120,000 Checkable Deposits $300,000 Loans Securities40,000 Property 200,000 140,000 Stock Shares 200,000Explanation / Answer
11) D)
reason = required reserve 10% , checkable deposit 300000 required reserve= 300000*10% = 30000
excess reserve = 120000-30000 =90000
multiplier = 1/10% =10
total money supply =90000*10 = $ 900000 billions
14) (A) Decrease in the price level
Reason when price and wages are flexible then in the long run decrease in aggregate demand , will increase in the long run supply then wages and price will flexible enough to adjust aggregate demand and aggregate supply so price will decrease in between.
15 ) b. Decrease aggregate demand by increasing the interest rate from 4 to 6 percent
reason as per the graph equilibrium at D point where interest rate is 4% and in order to bring back the AD interest rate should increase from 4 to 6 as bring the AD of $ 120 billions to $ 90 billion.
20 ) (C) . $32,000
required reserve 15% checkable deposit= 120000 total required reserve = 120000*15%=18000
excess reserve can loan i.e. = 50000- 18000 = $ 32000
25) C. Buy government securities in the open market
reason this will increase the liquidity in the market that would increase the investment demand and aggregate demand in the market.
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