Practice Questions7
Economics 330 Money and Banking
Fall 2000
- This
group of questions focuses on the material in Chapter 19 of the fifth
edition of Mishkin
1.
Identifications: define and give
a brief statement about the significance of each of the following terms:
Full employment
Frictional unemployment
Structural unemployment
Cyclical unemployment
Seasonal unemployment
Natural rate of unemployment
Hyperinflation
Intermediate targets
Operating targets
Real bills doctrine
Free reserves
2.
True/False/or Uncertain: for
each of these statements decide whether you think the answer is TRUE, FALSE, OR
UNCERTAIN and then briefly explain your answer.
- An increase in the excess reserve ratio will cause an
increase in the interest rates for Loans.
- An increase in the required reserve ratio will cause
an increase in the funds available to loan out.
- An increase in the required reserve ratio will cause
an increase in the aggregate demand.
- An increase in the required reserve ratio will cause
an increase in the level of prices.
- If there is an increase in the monetary base and at
the same time there is an increase in the {C/D} ratio there will be a
decrease in the aggregate demand.
- An increase in the {C/D} ratio will lower aggregate
demand and increase the level of income and prices.
- An increase in the public sector deficit financed
with public debt will cause a decrease in the level of excess reserves
maintained by the financial institutions and therefore a decrease in the
Money Supply.
- An increase in the public sector expenditure, ceteris
paribus, will cause an increase in the deficit of the public sector of an
equal magnitude.
- The public sector budget is an automatic stabilizer
because provided the public sector expenditure remains constant, it
changes with the business cycle, with deficits when there is an economic
expansion and surpluses when there is an economic contraction.
- If there is an increase in the required reserve
ratio, a sell-OMO and a decrease in the {C/D} ratio, it is likely that the
economy will enter into a recession.
- A budget deficit financed with bonds will cause an
increase in the economic activity.
- A budget deficit financed with taxes will have no
effect on the economic activity.
- A budget deficit financed with taxes will have no
effect on the level of prices.
- The rate of unemployment will remain constant if
there is a sudden increase in the {C/D} ratio.
- The unemployment rate and the rate of inflation are
always negatively correlated.
- The Federal Reserve has the power to control at the
same time the quantity of monetary base and the interest rate on discount
loans to the financial institutions, so economic theory is wrong, since as
the monopolist of monetary base the Federal Reserve can control at the
same time quantity and prices.
- Taxes are a stock because they are a liability.
- Government expenditure is a stock variable.
- Inventories maintained by firms are a stock variable.
- Changes in inventories are a stock variable.
- Private Savings plus Public Savings (in a closed
economy) can be different from zero.
- In a closed economy an increase in the public sector
deficit implies that the private sector is demanding more bonds.