You deposit a $1,000 scholarship check in the bank. If the required reserve ratio is 10 percent, explain how the banking system will create new money and how much money can potentially be created
Once the $1,000 is deposited, the bank is required to hold $100 (10 percent) as required reserves. The remaining $900 represents excess reserves and can be loaned out. The bank may lend the $900 to another customer who may deposit it in another bank, which will then hold 10 percent and lend out the remaining 90 percent again. This process continues until the deposits become too small to lend. In this way, banks can potentially create $10,000 in new deposits from the original $1,000 check.
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If an increase in autonomous consumption spending of $10 million results in a $50 million increase in equilibrium real GDP, then
A) the MPC is 0.5. B) the MPC is 0.75. C) the MPC is 0.8. D) the MPC is 0.9.
Answer the following statement(s) true (T) or false (F)
1. Protectionists support the use of trade barriers, such as tariffs and quotas. 2. Since the NAFTA was reached in 1992, trade among Canada, Mexico, and the United States has risen, but exports to the United States have declined. 3. Both environmentalists and free trade advocates supported the General Agreement on Tariffs and Trade (GATT). 4. Available data indicate that the reduction of trade barriers associated with the World Trade Organization (WTO) has led to improved trade flows.
Describe the sequence of events that real business cycle theorists would use to explain how an adverse supply shock would impact the economy. Use your answer to explain why it is easy to confuse cause and effect between changes originating on the supply side and those that begin on the demand side
Describe how changes in the Fed’s major policy tool leads to expansionary and restrictive monetary policies.
What will be an ideal response?