Problem Set 5
(HINT: Make certain you have done the Internet Activity #5 before doing this Problem Set #5!)
QUESTIONS 1-2 ONLY: Compute M1 and M2 given the following. Assume any asset not listed has a zero value.
QUESTIONS 1-2 ONLY: Compute M1 and M2 given the following. Assume any asset not listed has a zero value.
| Asset | Amount(Billions of Dollars) |
|---|---|
| Currency and Coins not in bank vaults | 110 |
| Savings Deposits | 220 |
| Checkable Deposits | 300 |
| Small Time Deposits of less than $100,000 | 200 |
| Credit Card Balances | 140 |
| Stock and Bond Mutual Funds | 100 |
| Traveler’s Checks | 120 |
| Nonbank Public Holdings of US Savings Bonds | 45 |
- Calculate M1.
- Calculate M2.
- Suppose Aunt Sophie transfers $1,000 to her savings account from her checking account. What happens to the value of M1 and to M2?
- Suppose Uncle Nacho sells shares of Time Warner stock for $20,000 and puts the proceeds from the sale into his money market mutual fund account. What happens to the value of M1 and to M2?
- Why aren’t credit card balances included in M1 or M2?
- What are the two reasons people wish to hold money?
- Which of the reasons for holding money gives the demand curve for money its downward slope? Why?
SKIPPING SOME QUESTIONS THAT I ALREADY HAVE ANSWERS TO—- SKIPS TO 24.
- What happens to the federal funds rate when the Federal Reserve increases bank excess reserves and the money supply through open market operations?
- What happens to the federal funds rate when the Federal Reserve decreases bank excess reserves and the money supply through open market operations?
- How might the Federal Reserve implement an expansionary monetary policy? Describe how the FED might use its three major policy tools to accomplish this.
- How might the Federal Reserve implement a restrictive or contractionary monetary policy? Describe how the FED might use its three major policy tools to accomplish this.
- How do lags affect monetary policy?
Questions 29-32: Suppose a bond with no expiration date has a face value of $5,000 and pays a fixed amount of interest of $500 annually.
- What is the interest yield on the bond when its market price is $6,000?
- What is the interest yield on the bond when its market price is $12,000?
- What is its market price when its interest yield is 5%?
- What is its market price when its interest yield is 8%?
Questions 33-40: The Second National Bank has vault cash in the amount of $500,000, outstanding loans of $200,000, buildings worth $700,000, U.S. government securities worth $100,000, and checkable deposits of $1,500,000.
- Identify and list each of this bank’s assets.
- Identify and list each of this bank’s liabilities.
Questions 35-40:Assume the bank faces a reserve ratio of 5%. What is the value of
- required reserves
- excess reserves
- monetary multiplier
- the maximum amount that money supply can be changed
- As a nationally chartered “bank”, which agency gave it the power to do banking?
- As a nationally chartered “bank”, which agency insures its depositors?
Jermaine Byrant
Nicole Johnson
OVER
RATING
YEARS
