ECO4223 EXAM 2 QUESTIONS AND ANSWERS 2025

ECO4223 EXAM 2 2025
ANSWER ALL QUESTIONS IN THIS SECTION



QUESTION 1



An open market operation is

a. equivalent to printing money

b. a purchase of real government assets by the Fed

c. a purchase or sale of bonds by the central bank

d. buying or selling dollars in the foreign exchange market - ANSWERS-a
purchase or sale of bonds by the central bank



QUESTION 2



In the simple deposit expansion model, if the Fed purchases $100 worth of bonds
from a bank that previously had no excess reserves, this bank can now increase its
loans by

a. $100 times the required reserve ratio

b. $10

c. $100

d. $100 times the reciprocal of the required reserve ratio. - ANSWERS-$100 times
the reciprocal of the required reserve ratio




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, ECO4223 EXAM 2 2025
QUESTION 3



Suppose that from a new checkable deposit, First National Bank holds two million
dollars in vault cash, eight million dollars on deposit with the Federal Reserve, and
one million dollars in required reserves. Given this information, we can say First
National Bank has __________ million dollars in excess reserves.

a. eleven

b. ten

c. three

d. nine - ANSWERS-nine



QUESTION 4



If 1-year interest rates for the next three years are expected to be 8, 7, and 6
percent, then according to expectations theory the interest rate on a 3 year bond
will be

a. 6

b. 8

c. not enough information

d. 7 - ANSWERS-7




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