Question 1

Why is it not the case that changes in reserves are certain to cause changes in the money supply?

Accepted Answer

The answer of Why is it not the case that...

Question 2

What are three reasons people hold money? Be sure to mention the three motives.

Accepted Answer

The answer of What are three reasons people hold money?...

Question 3

Calculate the money multiplier and the money supply from the following reserve requirements and deposits in the system.
(a) reserve ratio = 5%; deposits = $10,000
(b) reserve ratio = 10%; deposits = $10,000
(c) reserve ratio = 10%; deposits = $20,000

Accepted Answer

The answer of Calculate the money multiplier and the money...

Question 4

Suppose the reserve ratio changes from 10% to 20%, with all else unchanged and banks fully loaned out.Does the money supply in the economy increase or decrease? Why? Use the simple money multiplier to illustrate your answer.

Accepted Answer

The answer of Suppose the reserve ratio changes from 10%...

Question 5

If a central bank increases the money supply, and in the process generates fear of a country defaulting on its bonds, what would happen to the interest rate?

Accepted Answer

The answer of If a central bank increases the money...

Question 6

Suppose that American Citizen Bank receives $10,000 in new money in the form of a checking account.Calculate the amount of money the banking system can create under each of the following scenarios:
(a) The reserve ratio is 10% .
(b) The reserve ratio is 20%.

Accepted Answer

The answer of Suppose that American Citizen Bank receives $10,000...

Question 7

Which function of money is in each of the following cases demonstrating?
(1) You pay $15 for a movie ticket.
(2) You deposit your tax refund check in your saving account.
(3) A restaurant manager sets the prices of meals she serves in dollars.
(4) A restaurant manager keeps $5,000 worth of cash in a safety deposit box.
(5) McDonald's announces that a Big-Mac now costs only $3.00.
(6) Bill Gates net worth is around $90 billion.

Accepted Answer

The answer of Which function of money is in each...

Question 8

John Deere deposits $1,000 into Lawnmowers Community National Bank.Suppose banks hold reserves of 10% and people hold no currency outside of banks.What will be the amount of new money the banking system can create as a result of John's deposit?

Accepted Answer

The answer of John Deere deposits $1,000 into Lawnmowers Community...

Question 9

A bank's financial success depends on how well it accomplishes its two main tasks: asset management and liability management.Briefly explain what these two terms mean in the context of bank management.

Accepted Answer

The answer of A bank's financial success depends on how...

Question 10

Demonstrate equilibrium in the money market.Why does the demand curves have the slopes as you have drawn them? How does an increase in the demand for money affect the short-term interest rate?

Accepted Answer

The answer of Demonstrate equilibrium in the money market.Why does...

Question 11

What are bank reserves? What is the reserve ratio?

Accepted Answer

The answer of What are bank reserves? What is the...

Question 12

State whether the following illustrates the speculative, precautionary or transactions motive for holding money.
(a.) A bond broker holds cash for the possibility of buying a bond whose price is expected to rise.
(b.) John's mother tells him to keep $10 in his pocket any time he goes out in case he needs to put gas in the car.
(c.) Julio withdraws $100 from the bank to buy vegetables at the local organic farm market.
(d.) Mary takes out $50 from the bank to buy lunches during the week.
(c.) As stock prices begin to tumble, investors sell stock and increase their cash holdings.

Accepted Answer

The answer of State whether the following illustrates the speculative,...

Question 13

If the reserve ratio is 10%, what is the value of the simple money multiplier? If bank reserves are $10,000, what is the total quantity of demand deposits those reserves can support (assuming the simple money multiplier is the appropriate multiplier to use)?

Accepted Answer

The answer of If the reserve ratio is 10%, what...

Question 14

Economists use the terms save and invest in a way that is somewhat different from their common language usage.Explain the special meaning of these terms as used by economists.

Accepted Answer

The answer of Economists use the terms save and invest...

Quiz 10: The Financial Sector and the Economy