Answer Key to Study Questions for the Final

Here's the answer key to the sample problems for the final.

*Problems 6, 7, and 8 are not applicable to the material. I apologize for putting these items on this practice test. When I make these tests I go back to old tests and cut and paste. Unfortunately some inappropriate ones make the list. Although they have some slight relevance to the material (liquid v. illiquid assets and alternative asset instruments) they are more appropriate for a discussion of saving and investment, not banking.

1-A, 2-D, 3-A, 4-B, 5-B, 6*-B, 7*-A,
8*-A, 9-C, 10-D, 11-C, 12-C,
13-A, 14-B, 15-D, 16-C,
17**-D, 18-C, 19-D, 20-A, 21-A, 22-A,
23-C, 24-C, 25-C/D***, 26-A, 27-D, 28-C, 29-B,
30-D, 31-D, 32-B, 33-D, 34-D, 35****-C,
36****-B, 37-A, 38-B, 39-D, 40-D,
41-C, 42-C, 43-B, 44-A,
45-A, 46-B, 47-C, 48-A,
49-B, 50-B, 51-D, 52-D, 53-B, 54-A

Watch this space for corrections or comments to be added later.

Good luck.


**We did not discuss monetary neutrality in class and I will not ask questions about it. The key point about money neutrality is that changes in the money supply affect ONLY nominal figures, not real figures. So an increase in money supply would only increase the price level, making A, B, and C true statements. D is incorrect because if there is an increase in output there must be a proportional decrease in the price level.

***I really don't like how this problem is worded. Since the $1000 already exists in the form of M1 money, then the maximum expansion is the new money created by the first load of $800. That would make the most correct answer "C". I will make sure I use more carefully worded problems so that you won't have to second guess "Does the first $1000 count?"

****Why doesn't the balance sheet balance? Because in class we always assumed "net worth" is zero. But the text discusses with respect to a "positive" net worth. Net worth is the value of owner's interest, and this is somewhat of a company's liabilities. In a more complex T-account, Assets = Liabilities + Net worth. So in these problems net worth is 170. I won't have problems with positive net worth. I'll make our balance sheets balance on liabilities and assets.