1. when you multiply Large-denomination time deposits $ 304 billion times 947 billion you get a total of 292623 billion for M1, Small-denomination time deposits 198 billion + 292623= 292929 billion=326 billion=293275 billion for the grand total of M2 2. If 0. 25 represents 25% and the reserve means how much cash has to stay in the bank, then 25% of 4,000 is 1,000. That leaves 3,000 for a loan. The “excess” is the amount over the “required reserve”, 3,000 is 2,000 over the 1,000 required reserve. 2,000 is a 50% excess of the “required reserve” of the 4,000 $ deposit. 3. The formula for the money multiplier is:
M=1/R,….. M(money multiplier)=1/r(reserve ration) The money multipliers for required reserve ratios of 0. 15 and 0. 20 If r is . 10, then m is 10 (1/. 10=10). If r is . 05, then m is 20 (1/. 05=20). If r is . 15, then m is 6. 6 (1/. 15=6. 6), … If r is . 20, then m is 5 (1/. 20=5). 4. A. Someone makes a $10,000 deposit into a checking account, THIS WILL DEFINITELY INCREASE THE BANKS ASSETS BECAUSE THIS 10,000 WILL BE AN INVESTEMENT INTO THE BANK, AND MONEY THAT THE BANK CAN USE TO ITS ADVANTAGE. THE LIABILITIES WILL NOT BE AFFECTED. B. A bank makes a loan of $1,000 by establishing a checking account for $1,000.
THIS WILL INCREASE ITS LIABILITIES BECAUSE THE BANK IS LENDING MONEY, BUT IT WILL ALSO INCREASE THE BANKS ASSETS BECAUSE THEY HAVE ESTABLISHED A CHECKING ACCOUNT FOR 1,000$ C. The loan described in part (b) is spent. I THIS SITUATION THAT LIABILITIES HAVE INCREASED BECAUSE THE LOAN HAS BEEN SPENT, THE ASSETS ARE NOT AFFECTED D. A bank must write off a loan because the borrower defaults. THE BANK HAS NOW TAKEN A LOSS ON ITS LIABILITIES WHICH IS DECREASED WHEN IT IS WRITEN OFF, THE ASSETS ARE ALSO DECREASED BECAUSE THE BANK SPENTS ITS OWN MONEY TO COVER ITS LOSS. 5.
a. The Fed purchases $10 million worth of U. S. government bonds from a bank. AT THIS POINT THE BANKS ASSET HAVE SHOT UP BECAUSE THEY HAVE JUST SOLD 10 MILLION WORTH OF US GOVERMENT BOND WHICH TURNS INTO REVENUE, THE LIABILITIES ARE NOT AFFECTED, THE RESERVES ARE DECREASED BECAUSE 10 MILLION$ WORTH OF BONDS HAVE NOW LEFT TH 6. Athe money supply is currently $500 billion and the Fed wishes to increase it by $100 billion. Given a required reserve ratio of 0. 25, what should it do. THE BANK SHOULD INCREASE THE RESERVE RATIO SO THAT THE MONEY SUPPLY CAN INCREASE AS
WELL. B. If it decided to change the money supply by changing the required reserve ratio, what change should it make? THE CHANGE THE THAT THE FED SHOULD MAKE IS TO INCREASE THE RESERVE RATIO SO THAT THE AMOUNT OF MONEY COLLECTED IN RESERVE ACCOUNTS INCREASE AS WELL. 7. U. S. Federal Reserve notes circulate outside the United States, less than 10% of all M2 money is cash: Even if it were all held outside in the U. S. , it would be small compared with the other financial instruments in U.
S. dollars held outside the U. S.or by people, companies, or governments outside the U. S. (U. S. Treasury notes, bank accounts, etc. ) In fact, half to 2/3 of the currency is probably being help overseas. 8. COMMERCIAL BANKS CAN CREATE MONEY BY THE AMOUNT OF ITS EXCESS RESERVES AND BY THE MAXIMUM EXPANSION OF THE MONEY SUPPLY WHICH EQUALS A MULTIPLE OF FRESH BANK RESERVES. YES THE FED GOVERMENT IS THE ONLY INSTITUTION THAT CAN LEGALLY CREATE MONEY. 9a)I BELIEVE THE FEDS SHOULD DCREASE THE TOTAL MONEY Given a constant of VELOCITY, lowering the MONEY , lowers total spending.
b) If the Fed uses open-market operations when it buys securities, it is putting money into the economy in exchange for government debt. c) market interest rate increases, quantity of money demanded, I think DECREASES, Investment spending decrease, Aggregate demand DECREASES = Aggregate spending = C+I+G. If I goes down, aggregate demand goes down, Potential output- DOES NOT CHANGE, I would argue that potential output does not change. Potential output is the output, in real dollars, that could be obtained under full employment.
PRICE LEVEL WILL DECREASE, The goal of closing an expansionary gap is to lower inflation pressure. Price level should decline. Equilibrium real GDP- decrease 10. market interest rate increases, quantity of money demanded, I think DECREASES, Investment spending decrease, Aggregate demand DECREASES = Aggregate spending = C+I+G. If I goes down, aggregate demand goes down, Potential output- DOES NOT CHANGE, I would argue that potential output does not change. Potential output is the output, in real dollars, that could be obtained under full employment.
PRICE LEVEL WILL DECREASE, The goal of closing an expansionary gap is to lower inflation pressure. Price level should decline. Equilibrium real GDP- decrease 11. AIF THE ECONOMY REAL GDP IS GROWING, THE MONEY DEMAND OVER TIME WILL INCREASE BECAUSE THEIR IS THE NEED TO BUY MORE PRODUCTS THAT ARE OUT IN THE MARKET. B. If the Fed leaves the money supply unchanged, THE INTEREST RATE OVER TIME WILL REMAIN CONSTANT UNLESS THEIR IS AN INCREASE OR A DECREASE IN THE MONEY SUPPLY. C. If the Fed changes the money supply to match the change in money demand, THE INTEREST OVERTIME WILL DECREASE.
12 How does the Fed raise or lower that rate, and how is that rate related to other interest rates in the economy, such as the prime rate? THE FED RAISES THE FEDERAL FUNDS RATE BY EITHER RAISING OR LOWERING THE RATES FOR THE RESERVES ACCOUNTS, AN YES THE RATE IS REALATED TO OTHER INTEREST RATES IN THE ECONOMY SUCH AS PRIME RATES. 13. What is the impact of a decrease in the required reserve ratio on aggregate demand, THE IMAPCT OF A DECREASED WOULD RESULT IN AN INCREASE ON THE AGRGREGATE DEMAND BECAUSE NOW THEIR WILL MORE MONEY AVAILABLE WHICH WILL LEAD TO AN INCREASE IN AGGREGATE DEMAND.
14. Nominal GDP of 2010 of America is calculated by Quantity of goods sold in 2010 price level of 2010 If the price level of goods increase, or another word as inflation occur, the nominal GDP will also increase. The nominal GDP can be growth without determined the quantity of goods sold. Aggregate demand curve is the curve of the quantity of goods demand. So, by reading the growth of nominal GDP won’t get full information of aggregate demand curve.