Question

1. Suppose that the central bank increased bank reserves by $200 and that the required reserve ratio was 20%. Calculate the overall change in deposits that would result.

a		$200
b		$2,000
c		$1,000
d		Can not be determined

2. Which of the following represents use of a gold standard in the United States?

a		The great depression
b		America since the mid 1970s
c
d		Bretton Woods

3. Keynesian policy recommendations for managing aggregate demand are often called?

a		leaning against the wind
b		laissez-faire
c		inter-temporal solutions
d		social democracy

Answer 1

1) required reserve ratio is 20% which means deposit multiplier is 1/20% or 5. reserves are increased by $200 which means there is an increase in monetary base by $200. This is going to increase the money supply by 200 x 5 which is $1,000. Therefore deposits are increased by $1000. Select option C

2) option A is correct. it is often argued that because of the gold standard the supply of money was not expanded by the federal reserve due to which the great depression continued

3) option D is correct