BSP2701 Economics Assignment, NTU, Singapore: Under The Fractional Reserve Banking System, We Can Compute The Money Supply By Adding The Monetary

1)  Under the fractional reserve banking system, we can compute the money supply by adding the monetary base and total deposits in the banking system.
A) True
B) False

2) A lower interest rate will increase the demand for cash and liquid assets, which can be explained by an increase in the speculative demand for money.
A) True
B) False

3) According to IMF BPM6, under the financial account, the published numbers for assets would be positive and those for liabilities would be negative.
A) True
B) False

4) The central bank can regulate movements in the price of local currency by
decreasing or increasing the demand or supply of foreign exchange in the market.
A) True
B) False

5) Under perfect capital mobility, the monetary authority cannot control both interest rate and exchange rate.
A) True
B) False

6)  Unless otherwise stated, assume banks will lend out all their excess reserves and there is no leakage (to currency in circulation) during the money multiplier process. A lower reserve requirement ratio coupled with a decrease in the share of monetary base held by the public (currency in circulation) would translate into an increase in
A) bank reserves.
B) deposits.
C) loans.
D) money multiplier.
E) All of the above

7) Unless otherwise stated, assume banks will lend out all their excess reserves and there is no leakage (to currency in circulation) during the money multiplier process. Suppose the monetary base is 850 million and the total amount of currency in circulation is 119 million.
Consider a reserve requirement ratio of 7%, what would be the money supply if banks keep twice the minimum amount of required reserve?
A) 1.58 billion
B) 5.34 billion
C) 6.07 billion
D) 10.56 billion
E) 12.14 billion

8)  Unless otherwise stated, assume banks will lend out all their excess reserves and there is no leakage (to currency in circulation) during the money multiplier process. Given money supply is 2.91 billion and the amount of currency in circulation is 0.87 billion. If the total amount of loans is 1.93 billion, what would be the reserve requirement ratio under the fractional reserve banking system?
A) 2.8%
B) 3.0%
C) 3.5%
D) 5.4%
E) 6.2%

9) Unless otherwise stated, assume banks will lend out all their excess reserves and there is no leakage (to currency in circulation) during the money multiplier process. A spike in non-performing loan (NPL) amidst the macroeconomic slump has since deterred banks to expand credit in mainland China. And there were signs of Chinese banks holding onto their excess reserves (which they lent out all previously). This will translate into __________
interest rate in the money market attributed to __________.
A) higher; a decrease in money demand
B) lower; an increase in money supply
C) lower; a decrease in money demand
D) higher; a decrease in money supply
E) lower; a decrease in money supply

10) Given exports of goods = 140 billion, imports of goods = 106 billion and a service account surplus of 7 billion. If there is a current account deficit of 21 billion, and the credit items under the income account add up to 41 billion,
A) there would be an income account surplus of 20.
B) there would be an income account surplus of 62.
C) there would be an income account deficit of 20.
D) there would be an income account deficit of 62.
E) None of the above.

11) Under the published BOP data by IMF, the assets add up to -208 billion and the liabilities add up to -109 billion under the financial account, this implies
A) 99 billion shortage of foreign exchange under the financial account.
B) 99 billion surplus of foreign exchange under the financial account.
C) 317 billion shortage of foreign exchange under the financial account.
D) 317 billion surplus of foreign exchange under the financial account.
E) None of the above.

12) Amidst a lack of clarity on policy orientation, there is a decrease in nonresidents’ holdings of domestic equity assets in China, this implies that
A) RMB will appreciate attributed to an increase in the supply of foreign exchange.
B) RMB will appreciate attributed to an increase in the demand of foreign exchange.
C) RMB will depreciate attributed to an increase in the supply of foreign exchange.
D) RMB will depreciate attributed to a decrease in the demand of foreign exchange.
E) RMB will depreciate attributed to an increase in the demand of foreign exchange.

13) Assume private saving remains unchanged, a decrease in taxes will always
A) decrease investment if accompanied by an increase in current account deficit.
B) decrease investment if accompanied by a decrease in current account surplus.
C) decrease investment if accompanied by a decrease in current account deficit.
D) increase investment if accompanied by an increase in current account deficit.
E) increase investment if accompanied by an increase in current account surplus.

14)  Under the published BOP data by IMF, assets and liabilities in the financial
account add up to -1,015 million and -2,931 million respectively, and current account = 917 million. If capital account is zero and assuming errors and omissions are negligible, we can conclude that
A) the government’s reserve assets will decrease by 999 million in the period.
B) the government’s reserve assets will increase by 999 million in the period.
C) the government’s reserve assets will increase by 2,833 million in the period.
D) the government’s reserve assets will decrease by 2,833 million in the period.
E) the government’s reserve assets will remain unchanged in the period.

15) (2 marks) FED has since been pushing up interest rate in the U.S. to contain inflation while PBoC has since been cutting interest rate to pump prime the sluggish economy. What would be the implication for the Chinese Yuan (CNY) if there is no capital control in China?
A) CNY will depreciate as portfolio investment flows will lead to an increase in the demand and supply of foreign exchange.
B) CNY will depreciate as portfolio investment flows will lead to a decrease in the demand of foreign exchange and an increase in the supply of foreign exchange.
C) CNY will depreciate as portfolio investment flows will lead to an increase in the demand of foreign exchange and a decrease in the supply of foreign exchange.
D) CNY will appreciate as portfolio investment flows will lead to a decrease in the demand and an increase in the supply of foreign exchange.
E) CNY will appreciate as portfolio investment flows will lead to an increase in the demand of foreign exchange and a decrease in the supply of foreign exchange

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