26) Suppose that a commercial bank has $100 million of assets and that its capital consists of

$10 million of equity. In addition, the bank’s return on assets is 1 percent. Calculate the return

on equity (ROE) for this bank. 27) If, in a particular year, the government ran a budget deficit of $200 billion and the private

sector’s holdings of government securities increased by $100 billion, what is the likely dollar

increase in the monetary base resulting from the budget deficit? Page 1 of 3 28) Assume that an economy, in which all deposits issued by commercial banks are demand

deposits, is characterized by the following information:

Ratio of currency to demand deposits:

0.20

Required reserve ratio (ratio of required reserves to demand deposits): 0.10

Excess reserve ratio (ratio of excess reserves to demand deposits):

0.05

Total monetary base:

$100 billion

Calculate the values of the M1 multiplier and of the total stock of M1. 29) Assume that the U.S. economy in a particular period is characterized by the following data:

Actual inflation rate:

4 percent per year

Target inflation rate:

2 percent per year

Equilibrium real interest rate:

3 percent per year

Output gap (percentage excess of output over potential output): 2 percent

From the above data, calculate the value of the federal funds rate that would be prescribed by the

Taylor rule. Page 2 of 3 30) Suppose that an economy recorded the following growth rates in a particular year:

Percentage change in the real stock of money:

Percentage change in nominal GDP:

Percentage change in the price level (the GDP deflator): 4 percent

6 percent

1 percent From the above information, calculate the percentage change in the velocity of money. Page 3 of 3

26) Suppose that a commercial bank has $100 million of assets and that its capital consists of

$10 million of equity. In addition, the bank’s return on assets is 1 percent. Calculate the return

on equity (ROE) for this bank. 27) If, in a particular year, the government ran a budget deficit of $200 billion and the private

sector’s holdings of government securities increased by $100 billion, what is the likely dollar

increase in the monetary base resulting from the budget deficit? Page 1 of 3 28) Assume that an economy, in which all deposits issued by commercial banks are demand

deposits, is characterized by the following information:

Ratio of currency to demand deposits:

0.20

Required reserve ratio (ratio of required reserves to demand deposits): 0.10

Excess reserve ratio (ratio of excess reserves to demand deposits):

0.05

Total monetary base:

$100 billion

Calculate the values of the M1 multiplier and of the total stock of M1. 29) Assume that the U.S. economy in a particular period is characterized by the following data:

Actual inflation rate:

4 percent per year

Target inflation rate:

2 percent per year

Equilibrium real interest rate:

3 percent per year

Output gap (percentage excess of output over potential output): 2 percent

From the above data, calculate the value of the federal funds rate that would be prescribed by the

Taylor rule. Page 2 of 3 30) Suppose that an economy recorded the following growth rates in a particular year:

Percentage change in the real stock of money:

Percentage change in nominal GDP:

Percentage change in the price level (the GDP deflator): 4 percent

6 percent

1 percent From the above information, calculate the percentage change in the velocity of money. Page 3 of 3

26) Suppose that a commercial bank has $100 million of assets and that its capital consists of

$10 million of equity. In addition, the bank’s return on assets is 1 percent. Calculate the return

on equity (ROE) for this bank. 27) If, in a particular year, the government ran a budget deficit of $200 billion and the private

sector’s holdings of government securities increased by $100 billion, what is the likely dollar

increase in the monetary base resulting from the budget deficit? Page 1 of 3 28) Assume that an economy, in which all deposits issued by commercial banks are demand

deposits, is characterized by the following information:

Ratio of currency to demand deposits:

0.20

Required reserve ratio (ratio of required reserves to demand deposits): 0.10

Excess reserve ratio (ratio of excess reserves to demand deposits):

0.05

Total monetary base:

$100 billion

Calculate the values of the M1 multiplier and of the total stock of M1. 29) Assume that the U.S. economy in a particular period is characterized by the following data:

Actual inflation rate:

4 percent per year

Target inflation rate:

2 percent per year

Equilibrium real interest rate:

3 percent per year

Output gap (percentage excess of output over potential output): 2 percent

From the above data, calculate the value of the federal funds rate that would be prescribed by the

Taylor rule. Page 2 of 3 30) Suppose that an economy recorded the following growth rates in a particular year:

Percentage change in the real stock of money:

Percentage change in nominal GDP:

Percentage change in the price level (the GDP deflator): 4 percent

6 percent

1 percent From the above information, calculate the percentage change in the velocity of money. Page 3 of 3

$10 million of equity. In addition, the bank’s return on assets is 1 percent. Calculate the return

on equity (ROE) for this bank. 27) If, in a particular year, the government ran a budget deficit of $200 billion and the private

sector’s holdings of government securities increased by $100 billion, what is the likely dollar

increase in the monetary base resulting from the budget deficit? Page 1 of 3 28) Assume that an economy, in which all deposits issued by commercial banks are demand

deposits, is characterized by the following information:

Ratio of currency to demand deposits:

0.20

Required reserve ratio (ratio of required reserves to demand deposits): 0.10

Excess reserve ratio (ratio of excess reserves to demand deposits):

0.05

Total monetary base:

$100 billion

Calculate the values of the M1 multiplier and of the total stock of M1. 29) Assume that the U.S. economy in a particular period is characterized by the following data:

Actual inflation rate:

4 percent per year

Target inflation rate:

2 percent per year

Equilibrium real interest rate:

3 percent per year

Output gap (percentage excess of output over potential output): 2 percent

From the above data, calculate the value of the federal funds rate that would be prescribed by the

Taylor rule. Page 2 of 3 30) Suppose that an economy recorded the following growth rates in a particular year:

Percentage change in the real stock of money:

Percentage change in nominal GDP:

Percentage change in the price level (the GDP deflator): 4 percent

6 percent

1 percent From the above information, calculate the percentage change in the velocity of money. Page 3 of 3

$10 million of equity. In addition, the bank’s return on assets is 1 percent. Calculate the return

on equity (ROE) for this bank. 27) If, in a particular year, the government ran a budget deficit of $200 billion and the private

sector’s holdings of government securities increased by $100 billion, what is the likely dollar

increase in the monetary base resulting from the budget deficit? Page 1 of 3 28) Assume that an economy, in which all deposits issued by commercial banks are demand

deposits, is characterized by the following information:

Ratio of currency to demand deposits:

0.20

Required reserve ratio (ratio of required reserves to demand deposits): 0.10

Excess reserve ratio (ratio of excess reserves to demand deposits):

0.05

Total monetary base:

$100 billion

Calculate the values of the M1 multiplier and of the total stock of M1. 29) Assume that the U.S. economy in a particular period is characterized by the following data:

Actual inflation rate:

4 percent per year

Target inflation rate:

2 percent per year

Equilibrium real interest rate:

3 percent per year

Output gap (percentage excess of output over potential output): 2 percent

From the above data, calculate the value of the federal funds rate that would be prescribed by the

Taylor rule. Page 2 of 3 30) Suppose that an economy recorded the following growth rates in a particular year:

Percentage change in the real stock of money:

Percentage change in nominal GDP:

Percentage change in the price level (the GDP deflator): 4 percent

6 percent

1 percent From the above information, calculate the percentage change in the velocity of money. Page 3 of 3