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Eco 202– Questions And Proper Answers
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Eco 202– Questions And Proper Answers
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Eco 202– Questions And Proper Answersin a fractional reserve banking system, commercial banks keep _______ 100% of
deposits as reserves Right Ans - less than
bank run Right Ans - A situation in which many depositors simultaneously
decide to withdraw money from a bank
bank panic Right Ans - a situation in which many banks experience runs at
the same time, problematic for entire bank system
bank panics are accompanied by what Right Ans - recessions
A central bank can help stop a bank panic by Right Ans - acting as a lender
of last resort
which of the following statements about the financial crisis of 2007-2009
is/are true? (T/F Q) Right Ans - investment banks were more vulnerable
than commercial banks to bank runs because investment banks did not have
federal insurance.
did investment banks have federal deposit insurance? Did investment banks
have deposits? Right Ans - NO
The run on commercial banks took the form of depositors withdrawing their
deposits from investment banks. Right Ans - True
The maturity mismatch that banks face refers to the banks having ________
deposits and ________ loans Right Ans - short-term
long-term
using the quantity equation expressed in growth rates, if the money supply
grows at 5 percent, real gdp grows at 5 percent, and the velocity of money
grows at 3 percent, then the inflation rate will be? Right Ans - MV=PY
(5)(3)=p(5)
p=3%
,money supply Right Ans - currency + checking deposits + saving deposits
bank reserves Right Ans - assets: vault cash + bank deposits with fed
according to the quantity theory of money, inflation will occur if the Right
Ans - money supply grows at a faster rate than real GDP (price>GDP)
The gov budget constraint requires the gov to have a balance budget Right
Ans - false
The government budget constraint shows that a gov has three ways to pay for
government spending: taxes, borrowing by selling bonds (issue bonds),
printing money Right Ans - true
which of the following best described how banks create money? Right Ans -
banks create checking account deposits when making loans from excess
reserves. (make loans from excess reserves, loans take form of checking
accounts)
which of the following best describe how banks make a profit? Right Ans -
banks charge higher interest rates on loans than they pay on deposits
if the federal reserve buys US treasury securities, then this Right Ans -
increase bank reserves, encourage banks to make more loans, and increases
money supply
what happens when Fed reserve sells US treasury securities? Right Ans -
decrease reserves and money supply
bank reserves Right Ans - the currency banks hold in their vaults plus their
deposits at the Federal Reserve, includes US treasury securities
which of the following by the fed reserve would most likely increase the
money supply? The fed Right Ans - decreases the interest rate it pays on
bank reserves
open market sale of Treasury securities Right Ans - decrease reserves and
money supply
, If the required reserve ratio increases, the money supply decreases Right
Ans - true
they have less excess reserves and cant loan out as much
if fed decreases the interest rate it pays on bank reserves from 3% to 2%, the
commercial bank may take some funds out, and loan it at a higher interest
rate, increasing the money supply Right Ans -
if fed lowers interest rate Right Ans - encourages banks to make loans and
spend in the economy
if fed increases interest rate Right Ans - do not loan, ppl spend less to fight
inflation
if in year 1 the price level was 110 and GDP was 20 trillion and in year 2 the
price level was 115 and GDP was 19 trillion, then the predominant change
that occurred in year 2 was Right Ans - decrease (shift to left) in short run
aggregate supply
in the basic aggregate demand-supply model, an increase in the expected
future price level will in the short run lead to ____ in real GDP and _____ in price
level and ____ in unemployment Right Ans - decrease, increase , increase
shifts supply to left
not gonna ask same question but something very similar
supply curve shifts from Right Ans - price changes in oil and expected
future price level ONLY THESE ACCORDING TO HIM
in the basic aggregate demand-supply model, an increase in the interest rate
by the federal reserve will in the short run lead to ____ in the unemployment
rate and _____ in price level Right Ans - increase (bc output goes down)
decrease
know interest rate by federal reserve Right Ans -
in the basic aggregate demand-supply model, an decrease in the aggregate
demand will in the long run lead to a ___ in real GDP and ____ in the price level (
he will give us one question about long run) Right Ans - no change,
decrease
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