1. Suppose that the federal government had a debt of $9.0 trillion at the beginn
ID: 1108650 • Letter: 1
Question
1. Suppose that the federal government had a debt of $9.0 trillion at the beginning of 2006 and a debt of $9.3 trillion by the end of 2007. In 2006, the government spent $450 billion and received $300 billion in tax revenue. If in 2007, the government spent $550 billion. How much tax revenue did the government receive in 2007?
a. $150 billion
b. $250 billion
c. $300 billion
d. $350 billion
e. $400 billion
2. Which one of these institutions is a depository institution that offers a variety of depository accounts and makes loans to both members and non-members?
a. Hedge Funds
b. Federal Reserve Bank
c. Commercial Bank
d. Credit Union
e. An Investment Bank
3.Alison deposited $200,000 in her saving account. Her bank loaned the portion of that money that it could lend to Lisa who deposits the money in another bank. The second bank loaned $169,280 out from the deposit. Assuming that banks lend all their excess reserves and people deposit all their money, what is the Required Reserve Ratio?
. . 08
b. .10
c. .12
d. .15
e. .20
4.JT uses $8,000 from his saving account as the initial deposit on a house. As a result:
a. M1 will decreases by $8,000 and M2 remains the same
b. M1 and M2 will both decrease by $8,000
c. M1 and M2 will both increase by $8,000
d. M2 decreases by $8,000 and M1 decreases by $8,000
e. M2 decreases by $8,000 but M1 remains the same.
Explanation / Answer
1. Let Tax Revenue in 2007 be x
Debt at end of 2006 = $ 9 trillion + 0.45 - 0.3 = $ 9.15 trillion
Debt at end of 2007 = $ 9.3 trillion = 9.15 + 0.55 - x
x = $ 0.4 trillion = $ 400 billion (e)
2. (c) This is the definition of commercial bank
3. Let the reserve ratio be r
Money Loaned to Lisa = $ 200,000 * (1-r)
Money Loaned by second bank = $ 200,000 * (1-r) * (1-r) = $ 169,280
r = 0.08 (a)
4. Savings account deposits are considered in M2. Deposit on a house is a long term investment (included in M3). Hence, M2 decreases by $8,000 and M1 remains the same. (e)
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