Question

Assets	Liabilities
Reserves    +$8,000	Deposits   +$8,000

33) Refer to Table 14-2. Suppose a transaction changes a bank's balance sheet as indicated in the following T-account, and the required reserve ratio is 5 percent. As a result of the transaction, the bank can make a maximum loan of

A) $0.

B) $800.

C) $7,200.

D) $7,600.

35) An increase in interest rates

A) decreases investment spending on machinery, equipment, and factories, but increases consumption spending on durable goods and net exports.

B) decreases investment spending on machinery, equipment, and factories, and consumption spending on durable goods, but increases net exports.

C) decreases investment spending on machinery, equipment, and factories, consumption spending on durable goods, and net exports.

D) increases investment spending on machinery, equipment, and factories, consumption spending on durable goods, and net exports.

Answer 1

33) There is a deposit of $8,000 in the bank.

Required reserve ratio = 5%

Required reserve ratio is the ratio of money which banks keeps with themselves and lend rest of the money. 5% of 8,000 is 400 which means 400 is kept with banks and 7,600 is ls lent.

Option D is correct.

35) Increase in interest rate will reduce investment because they have the inverse relation with each other. It will appreciate the domestic currency which will make domestic goods comparatively expensive which reduce exports and raise imports. In total, it will reduce net exports.

Option C is correct.