Key to Test 3 study problems

Note: Problems 33 (the real 33, not the 28 33), 34, and 35 are not relevant for the test. They are from Chapter 9. Problem 26 is pretty tough, but try to figure it out anyway.

1-C, 2-D, 3-D, 4-D, 5-B, 6-C, 7-D,
8-C, 9-C, 10-A, 11-C,
12-C, 13-A, 14-A, 15-B, 16-D, 17-A, 18-B,
19-A, 20-D, 21-C, 22-C,
23-D, 24-C, 25-A, 26-B, 27-D, 28 (a.k.a, 33) -A,
29-D, 30-A, 31-B, 32-B, 33-B, 34-A, 35-A,
36-C, 37-D, 38 (oops, missing), 39-C, 40-C, 41-A, 42-A,
43-C, 44-C, 45-C*, 46-A, 47-D, 48-C, 49-B,
50-D, 51-D, 52-B, 53-D.

*Be careful on 45. The initial $1000 deposit is already money. The expansion process begins with that $1000 that was already money and becomes a deposit. The lending begins with $800. So total deposits expand by $800 x (1/.20) = $4000. Starting with $1000 would double count that $1000. (This differs from the case when the Fed buys bonds via open market operations. Those new reserves can be fully loaned out and you would want to use that first loan amount to calculate how much the money supply expands. Those reserves created by the Fed bond purchase are not "money" until loaned. )

If you have any questions you can try to contact me. I expect to be in Pittsburgh for the evening and will try to be online briefly when I get home from the Pirates game.

Good luck.