ECN Exam 2 Questions with Complete
Solutions5
An associate professor of physics gets a $200 a month raise. With her new monthly salary she
can buy fewer goods and services than she could buy last year ... - ANSWERS -Her real salary has
fallen and her nominal salary has risen
In a system of fractional-reserve banking ... - ANSWERS -banks can increase the money supply
Other things the same, if the US price level falls, then U.S residents want to buy... - ANSWERS -
more foreign bonds. the real exchange rate falls
The price level rises by 5% over a year. The nominal interest rate during this period was 4.5
percent. What was the real interest rate during this period? - ANSWERS --0.5 percent
If U.S. speculators gained greater confidence in foreign economies so that they wanted to move
more of their wealth into foreign countries, the dollar would... - ANSWERS -depreciate and Net
Exports would increase
Rosa deposits $100 in a bank account that pays an annual interest rate of 20 percent. A year
later, after Rosa has accumulated $20 in interest, she withdraws her $120. Rosa's purchasing
power ... - ANSWERS -did not change if the inflation rate was 20 percent
If real GDP doubles and the price level doubles, then nominal GDP ... - ANSWERS -quadruples
Net exports equal ... - ANSWERS -exports minus imports
, Metropolis National Bank is holding 2% of its deposits as excess reserves. Assume that no banks
in the economy want to maintain holdings of excess reserves and that people only hold deposits
and no currency. The Fed makes open market purchases of $10,000. The person who sold bonds
to the Fed deposits all the funds in Metropolis National Bank. If the bank now loans out all its
excess reserves, by how much will the money supply increase? - ANSWERS -$200,000
According to purchasing-power parity, when a country's central bank decreases the money
supply, a unit of money ... - ANSWERS -gains value both in terms of the domestic goods and
services it can buy and in terms of the foreign currency it can buy
Suppose a country's net capital outflow does not change, but its investment declines by $420
billion. Its saving must have ... - ANSWERS -fallen by $420 billion, but its net exports are
unchanged
The manager of the bank where you work tells you that your bank has $10 million in excess
reserves. She also tells you that the bank has $500 million in deposits and $455 million in loans.
Given this information you find that the reserve requirement must be ... - ANSWERS -7.0
percent
A Chinese company exchanges yuan (Chinese Currency) for dollars. It uses these dollars to
purchase scrap metal from a U.S company. As a result of these transactions, Chinese net exports
... - ANSWERS -decrease, and U.S. net capital outflow increase
Assume the Fed's reserve requirement is 5 percent and all banks besides the Bank of Cheerton
are exactly in compliance with the 5 percent requirement. Further assume that people hold only
deposits and no currency. Starting from the situation as depicted by the T-account, if the Bank
of Cheerton decides to make new loans so as to end up with no excess reserves, then by how
much does the money supply eventually increase? - ANSWERS -24,000
A company in Panama pays a U.S architect to design a factory building. By itself this
transaction ... - ANSWERS -increase Panama' imports and so decreases the Panama's trade
balance
Solutions5
An associate professor of physics gets a $200 a month raise. With her new monthly salary she
can buy fewer goods and services than she could buy last year ... - ANSWERS -Her real salary has
fallen and her nominal salary has risen
In a system of fractional-reserve banking ... - ANSWERS -banks can increase the money supply
Other things the same, if the US price level falls, then U.S residents want to buy... - ANSWERS -
more foreign bonds. the real exchange rate falls
The price level rises by 5% over a year. The nominal interest rate during this period was 4.5
percent. What was the real interest rate during this period? - ANSWERS --0.5 percent
If U.S. speculators gained greater confidence in foreign economies so that they wanted to move
more of their wealth into foreign countries, the dollar would... - ANSWERS -depreciate and Net
Exports would increase
Rosa deposits $100 in a bank account that pays an annual interest rate of 20 percent. A year
later, after Rosa has accumulated $20 in interest, she withdraws her $120. Rosa's purchasing
power ... - ANSWERS -did not change if the inflation rate was 20 percent
If real GDP doubles and the price level doubles, then nominal GDP ... - ANSWERS -quadruples
Net exports equal ... - ANSWERS -exports minus imports
, Metropolis National Bank is holding 2% of its deposits as excess reserves. Assume that no banks
in the economy want to maintain holdings of excess reserves and that people only hold deposits
and no currency. The Fed makes open market purchases of $10,000. The person who sold bonds
to the Fed deposits all the funds in Metropolis National Bank. If the bank now loans out all its
excess reserves, by how much will the money supply increase? - ANSWERS -$200,000
According to purchasing-power parity, when a country's central bank decreases the money
supply, a unit of money ... - ANSWERS -gains value both in terms of the domestic goods and
services it can buy and in terms of the foreign currency it can buy
Suppose a country's net capital outflow does not change, but its investment declines by $420
billion. Its saving must have ... - ANSWERS -fallen by $420 billion, but its net exports are
unchanged
The manager of the bank where you work tells you that your bank has $10 million in excess
reserves. She also tells you that the bank has $500 million in deposits and $455 million in loans.
Given this information you find that the reserve requirement must be ... - ANSWERS -7.0
percent
A Chinese company exchanges yuan (Chinese Currency) for dollars. It uses these dollars to
purchase scrap metal from a U.S company. As a result of these transactions, Chinese net exports
... - ANSWERS -decrease, and U.S. net capital outflow increase
Assume the Fed's reserve requirement is 5 percent and all banks besides the Bank of Cheerton
are exactly in compliance with the 5 percent requirement. Further assume that people hold only
deposits and no currency. Starting from the situation as depicted by the T-account, if the Bank
of Cheerton decides to make new loans so as to end up with no excess reserves, then by how
much does the money supply eventually increase? - ANSWERS -24,000
A company in Panama pays a U.S architect to design a factory building. By itself this
transaction ... - ANSWERS -increase Panama' imports and so decreases the Panama's trade
balance
