22) Monetary policy refers to actions: A) Central bank to manage money supply an

Question

22) Monetary policy refers to actions:

A) Central bank to manage money supply and interest rates to achieve macroeconomic policy objectives.

B) Head of State to manage government expenditure and taxes to achieve economic objectives.

C) Central Bank to manage government expenditure and taxes to achieve economic objectives.

D) Head of State to manage money supply and interest rates to achieve economic objectives.

24) Which of the following will encourage (encourage) the government to pursue an expansionary fiscal policy?

A) An increase in consumer spending.

B) Increase in net exports.

C) A decline in private investment spending.

D) Low oil prices.

25) Which of the following operations can be included in the country balance of payments financial account?

A) A Qatari buys an American car.

B) An American buys an American car.

C) A Qatari buys shares and bonds from the United States.

D) Remittances of Egyptians working in Qatar.

Computational questions

The following table represents the monetary supply components of an economy, assuming there are no tourist checks:

$1,000

$2,000

$15,000

A) Calculate the M1 (money supply in the narrow sense) of this economy. =

B) Calculate 2M (broad money supply) for this economy. =

C) Suppose you withdrew $ 1000 from your savings account and took that amount into your pocket. Explain briefly how this will affect M1 and M2.

2) Suppose that the bank has $ 100 million of deposits in current accounts and the ratio of compulsory (compulsory) reserve is 20 percent. If the central bank reduces the mandatory (mandatory) reserve ratio to 15 percent. Calculate excess reserves (amount of funds available for lending) to the bank.

3) If the nominal exchange rate between the US dollar and the Canadian dollar is C $ 0.89 to the US dollar, how many dollars is required to buy a $ 2.5 CAD product?

2) Describe and explain the tools used by the central bank to reduce money supply.

$1,000

  currency

$2,000

  Current account

$15,000

  Saving account

Explanation / Answer

22.) Monetary policy is conducted by Central bank & is related to money supply & interest rates

Option a.

24.) Option C) decline in private investment encourage the govt to increase expenditure in public sector

25.) Option C) financial account includes bonds & equities market

Question A.)

M1 currency + current account= 3000$

B.)

M2 = M1 + near money ( saving account)= $18000

C) M1 will remain unchanged & M2 will fall by 1000$ = $17000

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