Rita Berbati · EXAM QUESTIONS Question 1 Show the ways how the decrease in central bank money (= money base) by the Bank of Japan (= central bank of Japan) can change the excessive reserve of private...

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Rita Berbati · EXAM QUESTIONS   Question 1 Show the ways how the decrease in central bank money (= money base) by the Bank of Japan (= central bank of Japan) can change the excessive reserve of private banks; and the interest rate at the money market equilibrium in Japan.   Question 2 Using diagrams show how an increase in money supply on the money market could affect the product market equilibrium in the context of Keynesian “Transmission Mechanism”. To what extent does this Keynesian approach differ from the so-called “Quantity Theory of Money”?   Question 3 On the 30th of January 2017 the government of country B increased income tax rate drastically, which was followed by a massive increase in sales of the government bonds by the central bank on the 1st of March 2017. What would be the expected consequences of these two policy measures on GDP, inflation rate, unemployment rate, and interest rate of this country?   Question 4 What are the factors that can change the demand for a currency? Using the appropriate graphs explain how an increase and a decrease in the demand for the currency affect the exchange rate and the value of the currency demanded. Question 5 Assume that a country enters a recession. Use an aggregate-supply/aggregate-demand diagram and a Phillips-curve diagram to explain the changes in the economy in the short run. What are the effects on inflation and unemployment in the short run and in the long run?   Question 6 Money Multiplier: Assume the European Central Bank wants to supply more money to the European market. The required reserves ratio is currently set at 1%. 1. It is assumed that banks hold no excess reserves and households hold no currency. An increase in deposits of 50 million EUR is planned.   Compute the money multiplier and the total money supply illustrated with the examples below:   First National Bank Second National Bank Third National Bank Assets Liabilities Assets Liabilities Assets Liabilities       2. What would be the total money supply if the ECB increases it´s reserve ratio to 2,5%? 3. Why can an actual money multiplier be significantly smaller than the theoretically possible money multiplier?   Question 7 According to the quantity equation:  M ´ V = P ´ Y, an increase in the quantity of money in an economy must be reflected in one of three other variables. Please explain the effect of each of the variables on money quantity and give an example for each change from real life. Which variable will have the biggest influence on the money quantity? The velocity of M1 has recently been increasing in the Eurozone. What could be the economic causes and consequences of this change in the euro area?   Question 8 The Fisher effect refers to a one-to-one adjustment of the nominal interest rate to the inflation rate. If so what it the development of the real interest rate? Is the Fisher effect proven in real life? Can you give an example?