econ khan academy
The First Bank of Hamsterville operates under a fractional reserve system and the required reserve ratio is 20%. The bank has $100,000 in demand deposits, $50,000 in business loans, and $15,000 in consumer loans. Based on this information, how much does First Bank need to keep in required reserves?
$20,000
The reserve requirement in Westeros is 25%. Assume that banks keep no excess reserves and there are no other monetary leakages. What is the maximum possible increase in the money supply if an additional ,$ 500 is added to the monetary base?
$20,000
The First Bank of Cloud City has total reserves of $1000, excess reserves of $800, and required reserves of $200. What is the dollar value of new loans that this bank can make?
$800
The values of several types of assets in Hamsterville are given in the table below. What is the value of M2 in Hamsterville?
$935 million
Ygritte loaned Mans $100. Mans paid her back $110 one year later. The annual rate of inflation was 3%.What was the nominal interest rate that Ygritte earned on this loan?
10%
Mance wants to borrow money, but he doesn't want to pay more than 11% real interest per year. He expects the annual rate of inflation to be 3% each year during the life of the loan.Based on this information, what is the highest nominal interest that he will be willing to pay?
14%
The Iron Bank wants to make sure that the purchasing power of the interest that they get paid on loans is at least 11%. Real GDP is increasing at 5% per year, and the expected rate of inflation is 7% per year.If all banks in Westeros want to earn the same real return as the Iron Bank, what is the nominal interest rate (n.i.r)?
18%
Assume that all banks fully loan out excess reserves and all money is re-deposited into banks. If the money multiplier is 444, what is the reserve requirement?
25%
Grey Worm borrowed $20 from Daenerys and promised to pay her back $25 a year later.What is the nominal interest rate that Daenerys expects to earn if the rate of inflation is 10%?
25%
Hodor borrowed $1000. The bank charges him 5% interest per year. At the end of one year, he paid $50 in interest. During that year, there was a 2% increase in the GDP deflator.What was the nominal interest rate?
5%
The Iron Bank of Westeros charges the Lannister family 12% interest on their loans. The director of finance at the bank collected information about the economy in Westeros over the past year as shown in the table below.variable changeReal GDP growth rate 3%Increase in the real GDP deflator 7%What was the real interest rate that the Iron bank earned on these loans?
5%
Ygritte loaned Mans $100. Mans paid her back $110 one year later. The annual rate of inflation was 3%.What was the real interest rate that Ygritte earned on this loan?
7%
The development of online banking has made it easier for people to move wealth to cash from other forms of assets. What change would counteract the effect of this on the nominal interest rate?
A decrease in the money supply.
The graph below shows the effect of a change in the market for loanable funds. Which of the following best describes an event that could cause the change shown in the graph?
A government runs a budget deficit
Which of the following leads to a decrease in the demand for money?
A lower price level
Which of the following leads to an increase in the money supply?
An increase in loans made from excess reserves
Which of the following best describes why the expansion of the money supply might be different than is predicted by the simple money multiplier?
Banks may choose to keep excess reserves instead of making loans
Which of the following is an example of expansionary monetary policy?
Buy bonds
Which of the following are included in the monetary base (MB), but NOT in the money supply (M1)?
Currency in bank vaults on reserve
The economy of Maxistan is in a recession caused by a decrease in consumer confidence, as shown in the model here. How will the change in the price level impact the money market and nominal interest rates?
Demand for money decreases; nominal interest rates decrease
The figure below shows the result of a change in the market for loanable funds. Which of the following is the most likely to have caused the shift shown here?
Domestic saving decreases.
Which of the following best describes how banks determine what interest rate to charge?
Expected real interest + expected inflation
People in Hamsterville are looking forward to a long, fun-filled retirement and are saving more money to make sure they can go on trips around the world when they retire. What happens to the interest rate and long-run aggregate supply (LRAS) as a result of what happens to the interest rate?
Interest rate decreases; LRAS increases
What is the short-run effect of a decrease in the money supply on output and the price level?
Output decreases; price level decreases.
The amount of money that people want to hold is greater than the money supply at the current interest rate. Which of the following describes the process that returns the money market to equilibrium when the quantity of money demanded is greater than the money supply?
People sell their bonds, which lowers bond prices, which in turn increases interest rates.
What happens to the price and interest rate of a bond if the demand for that bond increases?
Price increases; interest rate decreases.
Which of the following is a function of money that is most immediately impacted by hyperinflation?
Store of value
Which of the following best defines liquidity?
The ability to convert a store of value to cash
All of the following lead to an increase in nominal interest rates EXCEPT
The central bank buy bonds
Which of the following would be the appropriate model to use to describe the behavior of borrowers and savers?
The market for loanable funds
The reserve requirement in Petmeckistan is 20% If the central bank buys $1000 in bonds, what is the maximum possible change in the money supply?
The money supply increases by $5000
The central bank of Johnsrudia sold existing government securities in an open market operation.
The nominal interest rate increases.
Which of the following interest rates is a central bank MOST LIKELY to target directly when using monetary policy?
The overnight interbank lending rate
Interest rates in Hamsterville have fallen and, as a result, the net return to investment projects are higher than before interest rates fell and now firms are more willing to take out loans. Which of the following changes would reflect what is described in the statement above?
The quantity of loanable funds demanded increased.
At the current interest rate of 5%, national savings in Florin is currently $200 million but investment demand is currently $100 million. Which of the following best describes what will happen once the credit market clears in Florin?
The real interest rate will be lower than 5\%5%5, percent; the amount of loans made will be between \$100$100dollar sign, 100 million and \$200$200dollar sign, 200 million
Citizens in Fredland are saving more. Which of the following best describes the impact of this statement on the market for loanable funds?
The supply of loanable funds increases and the real interest rate decreases.
If Ygritte deposits \$1000$1000dollar sign, 1000 into her checking account in the Third Bank of Westeros, how much will the bank have in excess reserves?
\$750$750
Which of the following increases the demand for money?
a higher price level
An increase in real GDP has changed the demand for money, and the central bank wants to use open market operations to counter the effect of the change in demand on the nominal interest rate using open market operations. Which of the following is an open market operation that would have the desired effect on the nominal interest rate?
buy bonds
he interest rate that the bank paid you on your savings account last year was 18%. One year later you find that you can buy 12% more goods than you could last year.Based on this information, what was the nominal interest rate (n.i.r.), real interest rate (r.i.r.), and the rate of inflation (inf. rate)?
n.i.r =18% r.i.r =12% inf. rate =6%
The interest rate that the bank charged you on your loan last year was 9%. One year later you find that it costs you 2% more to buy goods and services this year as it did last year.Based on this information, what was the nominal interest rate (n.i.r.), real interest rate (r.i.r.), and the rate of inflation (inf. rate)?
n.i.r =9% r.i.r =7% inf. rate =2%
Which of the following best describes the difference between nominal interest rates and real interest rates?
nominal interest rates are not adjusted for inflation; real interest rates are adjusted for inflation
Which of the following financial assets carries the most risk?
stocks
