18S-ECON103 Scenarie Imagine thar Stellia deposits $25,000 in currescy (which sh
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Question
18S-ECON103 Scenarie Imagine thar Stellia deposits $25,000 in currescy (which she had been ssoring ie her sock drawer) into her checking accound ar the bask Assume the regwired reserve ratko is 25 percent 21. Refer to Scenario 1. As a result of Stella's deposit, what is the maximum amount in loans that can b made by all the banks in the banking system? a. $31,250 b $25,000 . $18,750 e. $100,000 22. Refer to Scenario 1. As a result of Stella's deposit, what is the maximam amount that Sella's bank can hold as loans? a. $100,000 b. $31,250 C. $0 d. $25,000 e. $13,75o 23. Inflation occurs when a. the overall level of prices rises. b. all prices in the economy fall. e the prices of some goods rise and prices of some goods fall, but more goods have price increases than decreases all prices in the economy rise. d e. the prices of some goods rise and prices of some goods fall, but fewer goods have price increases than decreases 24. According to the Solow model, an ecoeomy should build more capital as long as the extra benefit is at least as great as the extra cost. a. b. more capital as long as doing so will increase output c. more capital as long as there are no diminishing returns d. more capital as long as the marginal product is positive. e. as much capital as possible. 25. You borrow some amount of money for five years at a fixed rate of 4 percent. For the first three years inflation is 3 percent, and for the last two years, deflation is 3 percent. Based on this information, your a. real rate of interest was larger than your nominal rate only for the last two years. b. nominal rate of interest exceeded your real rate for the entire five years. e. real rate of interest exceeded your nominal rate for the entire five years. d. real rate of interest was larger than your nominal rate only for the first three years e. nominal rate of interest equaled your real rate for the entire five years. 26. If over a period of time real gross domestic product (GDP) decreases while nominal GDP increases, then this implies a. a significant drop in the price level. b. a significant rise in the price level. e. that real GDP is much greater than nominal GDP d. that the given period year occurs after the base period. e. that the given period occurs before the base period. Page 5 /11Explanation / Answer
Ans:
21) Option E
Money multipler = 1 / required reserve ratio
= 1 / 25%
= 4
Maximum loans = Deposits * money multipler
= $25000 * 4
= $100,000
22) Option E
Required reserves = $25000 * 25%
= $6250
Maximum amount that bank can hold as loans = $25000 - $6250
= $18750
23) Option A
the overall level of prices rises
Inflation is the increase in the general price level of goods and services in the economy.
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