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QUESTION 5 Suppose James transfers $500 from his checking account to his savings account. As a result of this action, OM1 sta
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1 poi QUESTION 7 Suppose the required reserve ratio is 25%. Assuming that banks hold no excess reserves and consumers hold no
1P QUESTION 8 Which of the following is an argument in favor of central bank independence? O Independence permits objective d
QUESTION 9 An automatic stabilizer is a tool that helps reduce the effect of a fall in demand for a firms product a tool tha
QUESTION 10 Which of the following is NOT a way for the Fed to increase aggregate demand? OLowering the discount rate OPurcha
QUESTION 11 M1 includes currency, travelers checks, and checking accounts. currency, travelers checks, checking accounts, a
QUESTION 12 and prices to An adverse supply shock causes output to O increase; increase Oincrease; decrease decrease; increas
QUESTION 13 Checking deposits are Ocommodity money. O liabilities for banks. not included in M1 or M2. primarily used as a st
QUESTION 17 are the most liquid. Among the following assets, money market mutual funds currency and coins O checkable deposit
QUESTION 14 The discount rate is the interest rate that O the Fed charges on loans made to the government. Omember banks char
QUESTION 15 The slope of the aggregate demand curve indicates that, as the price level increases, O the aggregate demand curv
QUESTION 16 is considered a liability to the bank. A loan A government security A checking account A building owned by the ba
QUESTION 18 increases the volume of imports in an economy. OA decrease in the price of domestic goods and services. An increa
QUESTION 19 Which statement about US private domestic investment is INCORRECT? It includes the purchase of machinery by forei
Refer to the below graph. At a price level of 116 116 110 105 1,0002,000 3,100 Real GDP (billions of dollars per year) invent
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Answer #1

Answer 5:

M1 includes cash plus checking deposits and M2 includes M1 and near money supply and savings deposit is a component of M2 and not M1. Thus, transfer of money from checking account to savings account lead to reduction in the level of M1 but the level of M2 stays the same because savings deposit will increase by the amount of fall in checking deposits. Thus, M2 stays the same.

Answer 6:

Option C. In the automatic adjustment process supply curve in graph b will shift up or leftwards because unemployment declines due to inflationary gap in the economy and this increases the bargaining power of workers vis-a-vis employers which increases wage rate and increases cost of production shifting the supply curve leftwards and taking the economy to its potential level.

Answer 7:

Option A. Increase in money supply = 1 / Required reserve ratio = 1 / .25 = 4.

Thus, increase in money supply = 1 * 4 = $4 . Thus, increase in money supply = $4 because of increase in deposits by $1.

Answer 8:

Option A. Independence of the Central Bank permits objective decision making regarding monetary policy that is not based on politics and thus promote stability in the economy.

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