Question 1

What are bank reserves? What is the reserve ratio?

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Question 2

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.

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Question 3

"Credit cards make a difference in how much money people hold,but they are not money." Explain this statement.

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Question 4

All M₁ assets are included in M₂.We will call those assets that are part of M₂ but not part of M₁,"M₂ assets".You have just received $5,000 that you must hold as either an M₁ asset or an M₂ asset.What are the costs and benefits of holding the $5,000 as an M₁ asset rather than as an M₂ asset? Explain.

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Question 5

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% and people hold no cash outside the banking system.
(b)The reserve ratio is 20% and people hold no cash outside of the banking system.
(c)The reserve ratio is 10% and the cash-to-deposit ratio is 10%.
(d)The reserve ratio is 10% and the cash-to-deposit ratio is 20%.
(e)The reserve ratio is 20% and the cash-to-deposit ratio is 20%.
For each of the scenarios (a)-(e),the total amount of new money that the banking system can create is found by using the following formula:
New Money = Initial deposit × the money multiplier
The key to getting the correct values in each case is the appropriate calculation of the money multiplier.For parts (a)& (b)the simple money multiplier formula (1/r)should be used.For parts (c)-(e)the money multiplier formula ((1 + c)/(r + c))should be used.

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Question 6

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)?

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Question 7

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?

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Question 8

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.

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Question 9

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?

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Question 10

Assuming individuals hold no cash (all cash is in bank vaults as reserves),calculate the simple 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
Now assume individuals hold 25% of their money in the form of cash.Calculate the simple money multiplier and the money supply for situations a-c above.

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Question 11

What are M₁ and M₂?

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Question 12

Bill Sikes deposits $2,000 into Dickens Bank.Suppose banks hold reserves of 15% and the cash-to-deposit ratio is 10%.What will be the amount of new money the banking system can create as a result of Bill's deposit?

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Question 13

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.As stock prices begin to tumble,investors sell stock and increase their cash holdings.
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.

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Question 14

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

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Question 15

Give the formulas for and explain the difference between the simple money multiplier and the money multiplier when people hold cash.

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Question 16

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.

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Question 17

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

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Question 18

What does it mean to say that policymakers cannot apply the money multiplier to determine the level of money in the economy? Does that mean the money multiplier equation is not true?

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Question 19

Which function of money is in each of the following cases demonstrating?
(1)You pay $10 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 $1.00.
(6)Bill Gates net worth is around $50 billion.

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Question 20

Match between columns
                        Premises: A bond broker holds cash for the possibility of buying a bond whose price is expected to rise.
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.
As stock prices begin to tumble,investors sell stock and increase their cash holdings.
Julio withdraws $100 from the bank to buy vegetables at the local organic farm market.
Mary takes out $50 from the bank to buy lunches during the week.

Accepted Answer

The Answer of speculative and precautionary and transaction is...

Quiz 13: The Financial Sector and the Economy

What are bank reserves? What is the reserve ratio?

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.

"Credit cards make a difference in how much money people hold,but they are not money." Explain this statement.

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)?

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?

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.

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?

What are M₁ and M₂?

Bill Sikes deposits $2,000 into Dickens Bank.Suppose banks hold reserves of 15% and the cash-to-deposit ratio is 10%.What will be the amount of new money the banking system can create as a result of Bill's deposit?

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

Give the formulas for and explain the difference between the simple money multiplier and the money multiplier when people hold cash.

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.

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

What does it mean to say that policymakers cannot apply the money multiplier to determine the level of money in the economy? Does that mean the money multiplier equation is not true?

what each of the following illustrates about holding money.

Quiz 13: The Financial Sector and the Economy

What are bank reserves? What is the reserve ratio?

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.

"Credit cards make a difference in how much money people hold,but they are not money." Explain this statement.

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)?

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?

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.

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?

What are M1 and M2?

Bill Sikes deposits $2,000 into Dickens Bank.Suppose banks hold reserves of 15% and the cash-to-deposit ratio is 10%.What will be the amount of new money the banking system can create as a result of Bill's deposit?

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

Give the formulas for and explain the difference between the simple money multiplier and the money multiplier when people hold cash.

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.

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

What does it mean to say that policymakers cannot apply the money multiplier to determine the level of money in the economy? Does that mean the money multiplier equation is not true?

what each of the following illustrates about holding money.

What are M₁ and M₂?