50. If a bank has$2,000 in excess reenes ind a 10%reserve regiemethe maximum pot
ID: 1121997 • Letter: 5
Question
50. If a bank has$2,000 in excess reenes ind a 10%reserve regiemethe maximum potential i the money supply is $20,000 A) True B) False increase in 51. The economy is self-comecting in the long run A) True B) False Use the following to answer question 52 Pigures Aggregate Supply Aggregate price level LRAS SRAS Potential GOP Real GDFP 52. (Figure: Aggregate Supply) Look at the figure Aggregate Supply. At point F, potential output is than actual output and unemployment is A) less; low B) higher; high C) higher; low D) less; high 53. Deflation was a problem in both the Great Depression and the recession of 1979-1982 A) True B) False 54. If technology improves, then it takes more inputs to produce the same output as the last period. A) True B) False Version1 Page 12Explanation / Answer
Answer 50 - The bank has $2000 in excess reserves and 10% reserve requirement, the maximum potential increase in money supply depends on the money multiplier. The multiplier = 1 / required reserve ratio
Money multiplier = 1 / 0.1
Money multiplier = 10
Potential increase = 2000* 10
Potential increase = $20,000
The given statement is correct.
Answer 51 - The economy is self - correcting in the long run, this statement is true. Classical economist believes that a free market will have self-correcting mechanism. Any intervention brings problem in functioning of an economy.
Answer 52 - In the diagram aggregate supply is on point 'F', at this point potential output is higher than actual output and unemployment is low. The LRAS curve shows potential output in the long run. Since 'F' lies to the left of this curve thus actual output is below potential output.
Answer 53 - Deflation was a problem in both the great depression and the recession of 1979-1982. This statement is true. Deflation refers to the decline in the prices which was common in both events.
Answer 54 - As technology improves, then it takes more inputs to produces same output as the last period. This given statement is false. As technology improves it takes less input to produce same output as the last period because marginal productivity of the inputs has been increased.
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