Question

Table 3-2 Assets Liabilities Bonds Loans Vault cash Deposits at the Fed $250 Deposits $600 $100 $1,000 $50 18) Refer to Table 3-2. Consider the above simplified balance sheet for a bank. If the required reserve ratio, r, is 5%, what are this bank's required reserves, RR? A) $50. B) $100 C) $150. D) $400. 19) According to the quantity theory of money, if the money supply grows at 20% velocity doesn't change, and real GDP grows at 5%, then the inflation rate will be B) 25%. A) 100%. C) 20%. D) 1596. 20) Monetary policy refers to the actions the A) Federal Reserve takes to manage government spending and taxes to pursue its economic B) President and Congress take to manage government spending and taxes to pursue their C) Federal Reserve takes to manage the money supply and interest rates to pursue its D) President and Congress take to manage the money supply and interest rates to pursue thei objectives. economic objectives. macroeconomic policy objectives. economic objectives.

Answer 1

18) Option A Because deposits are 1000, required reserves are 5% of 1000 = 50.

19) Option D. Growth rate of prices/inflation = Growth rate of money - growth rate GDP = 20% - 5% = 15%

20) Option C. It is the policy of managing credit and liquidity in the economy done by the Central bank of a nation.