Question

With reference to the Bank of England readings listed in the course outline, consider 5. the case in which a bank issues a new loan to a borrower who wishes to buy a house. Compared to the situation before the loan is made, which of the following is most likely to be true after the loan is used to buy the house? a. The size of the central bank's balance sheet expands b. The balance sheets of the house buyer and house seller expand The balance sheets of the house seller and the house seller's bank expand The balance sheets of the house buyer and the house buyer's bank expand c. d. According to the Bank of England readings listed in the course outline, which of the 6. following is most likely to happen under quantitative easing? The balance sheets of commercial banks and the central bank expand. a. b. There is no impact on the balance sheets of commercial banks and non-bank financial institutions Commercial bank balance sheets contract but the balance sheets of non-bank c. financial institutions expand d. Commercial bank balance sheets expand but the balance sheets of non-bank financial institutions contract 7. If Australian prices are two times as high as prices in the US, then If purchasing power parity holds, Australia's exchange rate will appreciate a. b. If purchasing power parity holds, Australia's exchange rate will depreciate c Australia's real exchange rate with respect to the $US will be half its nominal exchange rate with the $US Australia's real exchange rate with respect to the $US will be twice its nominal exchange rate with the $US. d. 8. At a steady state (with a positive output per capita) in the Solow-Swan model discussed in class The level of output does not change The level of savings does not change a. b. c. The capital-labour ratio does not change d. The amount of capital and labour do not change

Answer 1

Answer 5:

Option D. When the loan is used to buy the house, the balance sheet of the house buyer and the house buyer's bank expands. In the balance sheet of the house buyer, the asset side of the balance sheet will expand as house is an asset for the home buyer. On the other hand when the home buyer takes loan from the bank, loan is an asset for the bank of home buyer and thus balance sheet of the home buyer bank will expand.

Answer 6:

Option a. Under quantitative easing, money supply in the economy increases, which leads to expansion of the balance sheets of both commercial banks and central bank.

Answer 7:

Option C. The Real Exchange Rate = Nominal Exchange Rate * Domestic price / Foreign Price.Thus, Australian real exchange rate with respect to the US dollar will be half its nominal exchange rate with the US.

Answer 8:

Option C. At the steady state in Solow- Swam Model,the capital per capita or capital labor ratio remains constant.