Assume the reserve requirement is 10 percent. First National Bank has vault cash and deposits with ...

Assume the reserve requirement is 10 percent. First National Bank has vault cash and deposits with the Fed of 40 million, loans and securities of 360 million, and demand deposits of 400 million. First National:
 a. is not in a position to extend additional loans.
 b. could extend a maximum of 10 million of additional loans.
  c. could extend a maximum of 20 million of additional loans.
  d. could extend a maximum of 40 million of additional loans.

Question 2

According to the rational expectations view, _____.
 a. the economy will never deviate from the natural rate of unemployment for any anticipated policy
  b. the long-run inflation rate is equal to zero
  c. expected inflation is always less than actual inflation
  d. people use only past information to form expectations about future inflation rates
  e. announced money-growth policies are quite effective in reducing unemployment below its natural rate

Question 3

The flatter the demand curve passing through a given point, the less elastic the demand curve at that point.
 a. True
  b. False
  Indicate whether the statement is true or false

Question 4

A commercial bank has 1,000,000 of outstanding demand deposits and actual reserves of 300,000 . If the required reserve ratio is 20 percent, what is the maximum amount of new loans the bank can extend?
 a. zero
 b. 100,000
  c. 300,000
  d. 700,000

Question 5

According to the theory of rational expectations, expansionary fiscal policy that is anticipated will:
 a. cause wage expectations to adjust downward immediately following the lower price level.
  b. increase the real wage rate in the long run.
  c. cause a permanent decline in the natural rate of unemployment.
  d. decrease the real wage rate in the long run.
  e. cause wage expectations to adjust upward immediately following the higher price level.

Question 6

Using the midpoint method for calculating the price elasticity of demand, you get the same elasticity of demand between two points, whether you are moving up the demand curve or down it.
 a. True
  b. False
  Indicate whether the statement is true or false

Question 7

If a bank had the reserve requirement of 10 percent and excess reserves of 2,000, the largest loan it could legally extend would be:
 a. 200.
 b. 1,800.
 c. 2,000.
 d. 20,000.

Question 8

Suppose the inflation rate has risen 0.5 percent a year for the past three years. Using this experience an individual forecasts a 0.5 percent rise in the coming year's inflation rate. This is an example of:
 a. traditional expectations.
  b. rational expectations.
  c. adaptive expectations.
  d. reflective expectations.
  e. deductive expectations.

Question 9

If the price elasticity coefficient equals 4.2, then demand is relatively inelastic with regard to price.
 a. True
  b. False
  Indicate whether the statement is true or false

Question 10

Suppose all banks are subject to a uniform reserve requirement of 20 percent and that the Gamblers Last Chance Bank of Las Vegas has zero excess reserves. If a new customer deposits 10,000, the bank can now extend new loans up to a maximum of:
 a. 2,000.
 b. 8,000.
 c. 10,000.
  d. 50,000.

Question 11

The adaptive expectations theory suggests that:
 a. the price level that people expect in the future is based on the behavior of prices in the past.
  b. the unemployment rate adapts immediately to the inflation rate.
  c. people have perfect foresight and always predict future price levels correctly.
  d. people use all current information available to formulate their inflation expectations.
  e. people react spontaneously to price level changes and do not consider any past or present information.