Reference no: EM132307755

Question: 1) Money creation in modern banking systems:

a) Describe the process of the creation of money in the banking system.

b) Then, work through the following numerical example: Starting at zero deposits, 200$ are newly deposited at Bank A, the only bank in country A. The reserve requirement ratio is 20%. Give the first three iterations in the process that multiplies money in the banking system.

c) If the process plays out all the way, what is the eventual amount of money in deposits at bank A?

2) What does the aggregate supply (AS) curve represent? Why do we distinguish long-run and short-run when working in this framework?

3) Discuss the following statement, from an AS/AD model perspective (aggregate supply / aggregate demand): The influence of changes of aggregate demand on output level and price level depends on the economic environment. (What are ways to represent different economic environments in the model; through the slope of the curves in the model?)

4) What do shifts of the short-run aggregate supply curve represent? Name two possible causes for such shifts?

5) Describe the difference between cost-push inflation and demand-pull inflation.

6) What does the concept of crowding-out describe in macroeconomic models?

7) Explain the effects of expansive fiscal policy in an AS/AD model framework. Use IS-curve and Fed rule in your explanation.

8) Even if the output level in the long run is given, fiscal and monetary policy have effects on output. Which, and how/why?

9) Under which circumstances is a Central Bank in a binding situation? What does this mean for the policy options available for stabilizing or strengthening economic activity?

10) Briefly describe the different focuses of fiscal policy measures, and monetary policy measures, respectively.