Suppose that, for every 1-percentage-point decline in the discount rate, commercial banks collectively borrow an additional $2 billion from Federal Reserve Banks. Also assume that the reserve ratio is 10 percent. If the Fed lowers the discount rate from
4.0 percent to 3.5 percent, bank reserves will:
A. increase by $1 billion and the money supply will increase by $5 billion.
B. decline by $1 billion and the money supply will decline by $10 billion.
C. increase by $1 billion and the money supply will increase by $10 billion.
D. increase by $10 billion and the money supply will increase by $100 billion.
C. increase by $1 billion and the money supply will increase by $10 billion.
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Refer to Table 8-1. Suppose that a simple economy produces only four goods and services: sweatshirts, dental examinations, coffee drinks, and coffee beans. Assume all of the coffee beans are used in the production of the coffee drinks. Using the information in the above table, nominal GDP for this simple economy equals
A) 3,090 units. B) $7,250. C) $8,750. D) $9,750.
Economic experience since 1973 indicate that, under floating exchange rates
A) large and persistent departures from external balance were not prevented. B) large and persistent departures from external balance were prevented. C) changes in exchange rates failed to act as automatic stabilizers. D) reduced monetary policy autonomy. E) monetary policy autonomy was protected.