ECN 222 Homework 7

Table 29-3. An economy starts with $50,000 in currency. All of this currency is deposited into a single bank, and the bank then makes loans totaling $45,750. The T-account of the bank is shown below. Assets= Reserves $4,250 and Loans $45,750 Liabilities= Deposits $50,000 Refer to Table 29-3. If all banks in the economy have the same reserve ratio as this bank, then an increase in reserves of $150 for this bank has the potential to increase deposits for all banks by

$1,764.71.

Table 29-2 what is the M1 money supply? Large time dep 120 bil small time dep 80 bil damand dep 300 bil other checkable dep 50 bil savings dep 65 bil travelers checks 5 bil money mkt mutual 200 bil currency 150 bil credit card balances 300 bil Misc. M2 30 bil

$505 billion

Table 29-3. An economy starts with $50,000 in currency. All of this currency is deposited into a single bank, and the bank then makes loans totaling $45,750. The T-account of the bank is shown below. Assets= Reserves $4,250 and Loans $45,750 Liabilities= Deposits $50,000 Refer to Table 29-3. If all banks in the economy have the same reserve ratio as this bank, then the value of the economy's money multiplier is

11.76

Which of the following is correct concerning the FOMC?

All of the above are correct. (the members of the Board of Governors have the majority of the votes,the New York Federal Reserve Bank District President is always a voting member,all Federal Reserve Bank presidents attend the meetings)

A bank has a 5 percent reserve requirement, $5,000 in deposits, and has loaned out all it can given the reserve requirement.

It has $250 in reserves and $4,750 in loans.

Credit cards

are not considered money.

A bank's assets equal its liabilities under

both 100-percent-reserve banking and fractional-reserve banking.

Demand deposits are a type of

checking account.

The primary difference between commodity money and fiat money is that

commodity money has intrinsic value but fiat money does not.

The Board of Governors

has 7 members.

Fiat money

has no intrinsic value.

An open-market purchase

increases the number of dollars in the hands of the public and decreases the number of bonds in the hands of the public.

Commodity money is

money with intrinsic value.

If the Federal Open Market Committee decides to decrease the money supply, it will

sell government bonds.

Liquidity refers to

the ease with which an asset is converted to the medium of exchange.

If the reserve ratio is 12.5 percent, then $1,000 of additional reserves can create up to

$8,000 of new money.

Table 29-2 what is the M2 money supply? Large time dep 120 bil small time dep 80 bil damand dep 300 bil other checkable dep 50 bil savings dep 65 bil travelers checks 5 bil money mkt mutual 200 bil currency 150 bil credit card balances 300 bil Misc. M2 30 bil

$880 billion

Table 29-3. An economy starts with $50,000 in currency. All of this currency is deposited into a single bank, and the bank then makes loans totaling $45,750. The T-account of the bank is shown below. Assets= Reserves $4,250 and Loans $45,750 Liabilities= Deposits $50,000 Refer to Table 29-3. The bank's reserve ratio is

8.5 percent

Which of the following is an example of barter?

A barber gives a plumber a haircut in exchange for the plumber fixing the barber's leaky faucet.

A double coincidence of wants

All of the above (is required when there is no item in an economy that is widely accepted in exchange for goods and services. is required in an economy that relies on barter.is a hindrance to the allocation of resources when it is required for trade)

Money

All of the above (is more efficient than barter, makes trades easier, allows greater specialization)

In measuring the stock of money in the U.S., M1 includes

traveler's checks.