Question

The reserve-deposit ratio equals:

Select one:

a. 10% of bank reserves

b. 10% of bank deposits

c. bank reserves divided by bank deposits

d. 100% of bank reserves

One year before maturity, the price of a bond with a principal amount of $1000 and a coupon rate of 5% paid annually fell to $981. The one-year interest rate:

Select one:

a. rose to 7.0%

b. remained at 5%

c. rose to 8.5%

d. rose to 6.0%

If potential output equals 4000 and short-run equilibrium output equals 3500, there is a ______ gap and the Reserve Bank must _____ real interest rates in order to close the gap.

Select one:

a. expansionary; raise

b. contractionary lower

c. contractionary; raise

d. contractionary; not change

Answer 1

The reserve-deposit ratio equals:

Select one: Answer

c. bank reserves divided by bank deposits

The reserve deposit ratio is that part of depositors' balances that banks must have on hand as cash.

One year before maturity, the price of a bond with a principal amount of $1000 and a coupon rate of 5% paid annually fell to $981. The one-year interest rate:

Select one: Answer

a. rose to 7.0%

At equilibrium, both bonds have the same yield.

Thus, 981*(1+i) = 1,000 *(1.05)

Calculating i: 1+ i = 1,050/981 and i = 0.07 or 7.0% (increase)

If potential output equals 4000 and short-run equilibrium output equals 3500, there is a ______ gap and the Reserve Bank must _____ real interest rates in order to close the gap.

Select one: Answer

b. contractionary or recessionary lower

recessionary