Oscar withdraws $100 from his checking account and deposits into his savings account. The transaction causes MI to _______________and M2 to __________________. (increase, decrease, stay the same)

Oscar withdraws $100 from his checking account and deposits into his savings account. The transaction causes MI to _and M2 to ____. (increase, decrease, stay the same)

Economics:

10th Edition

ISBN:9781285859460

Author:BOYES, William

Publisher:BOYES, William

Chapter12: Money And Banking

Section: Chapter Questions

Problem 10E

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Vol) 7.60 LTE KB/s 4G+ 11:46... pert.chegg.com + [1 Chegg Home Expert Q&A My solutions Student question ☐ Notifications 67 Time Left: 00:09:46 Transaction One: Open a Bank and Accept Deposits Name your Bank Draw a T - Account Representing Deposits of $2 million Transaction Two: Grant a Loan The Reserve Requirement is 20% Customer A wants to borrow $1 million. Customer B wants to borrow $400,000. Customer C wants to borrow $300,000. Can you fulfill all three loan requests? Draw a T - Account Representing a bank that is fully "loaned up" (reduce the loan amount to Customer C if necessary) Transaction Three: Follow the Money Creation Process Customer A deposits his loan with his home bank, Bank of Taylor Draw a T - Account Representing this transaction for Bank of Taylor assuming they already have $1.5 million in deposits and loans in the amount of $700,000 Transaction Four: Calculate the Money Creation Effect What is the money multiplier rate in this example? If banks in this economy are…
(11) Transactions money is sometimes referred to as __________________ __________________.
2. Consider an economy in which banks are subject to a 5 percent reserve requirement. Assume that banks lend as much as they legally can. (a) What is the money multiplier in this case? (5%) (b) Suppose that Avraam deposits $1,000 in the bank. How much money is created? (5%) 'https://youtu.be/iFDe5kUUyTO
Figure 2: Ms Interest Rate (%) 10% 6% 4% Md 500 800 1,000 Money ($ million) 11. Refer to Figure 2. At an interest rate of 4%, there is: a) an excess supply of money of $200. b) an excess supply of money of $600. c) an excess demand for money of $600. d) an excess demand for money of $200.
Interest Rate (%) 2004 0 $75 150 225 Investment ($) Price Level Interest Rate (%) AS Q₁ Real GDP X Investment Demand 0 $50 100 150 Investment ($) -AD₂ (/=$100) AD3 (/=$50) Z AD₁ (/=$150) O Increase the money supply from $75 to $150 billion. O Increase the money supply from $150 to $225 billion. O Decrease the money supply from $225 to $150 billion. O Make no change in the money supply. Refer to the above diagrams, in which the numbers in parentheses near the AD1, AD2, and AD3 labels indicate the level of investment spending associated with each curve. All figures are in billions. The interest rate in the economy is 12 percent. What should the Fed do to achieve a noninflationary full-employment level of real GDP (Qf)?
2... Intro to banking 2. Suppose you bought a condo for $200,000 financing it with a $40,000 down payment of your own funds and a $160,000 mortgage loan from a bank. (10 points) a. Assume that the market value of your condo has now risen to $240,000. Ignoring interest and other costs, and assuming the loan amount is still $160,000, calculate your rate of return on your asset (ROA) and your rate of return on your equity (ROE). b. Now assume that, instead of (a), you only put down $20,000 and borrowed $180,000 to buy the condo. Assuming that the market value of your house has risen to $240,000 and ignoring interest and other costs, calculate your rate of return on your asset (ROA) and your rate of return on your equity (ROE). c. Now, instead of (a) or (b), suppose the value of the condo fell from $200,000 to $150,000. Assuming you paid $200,000, financing it with $40,000 of your own money and $160,000 with a mortgage loan, and ignoring interest and other…
R3 If an individual moves money from currency to a demand deposit account,A) M1 stays the same and M2 stays the same. B) M1 increases and M2 stays the same.C) M1 stays the same and M2 increases. D) M1 decreases and M2 stays the same.
Consider a bank that has made a large number of loans at a fixed interest rate of 4% and pays 3% interest to depositors. Assume that interest rates go up. New loans are now being made at 6% throughout the economy and depositors are being paid 5% interest. How does this change affect the bank's financial position? (1oint
4-- Suppose a bank's balance sheet looks like this. The bank is required to hold reserves equal to 10% of deposits. Assets Reserves Loans Total Assets $ 800 $ Liabilities 5200 $ 6000 $ Deposits 6000 Total Liabilities LA 6000 a. How much excess reserves does the bank hold? b. How much more can this bank lend?
QUESTION 11 Suppose that a new customer opens a checking account and a saving account, placing $50,000 in each. Later, the bank makes a loan of $100,000 to a business firm. For this bank a. assets increased by $100,000 because the checking and saving accounts are assets, and liabilities increased by $100,000 because the loan is a liability. b. assets increased by $50,000 because the saving account is an asset, while liabilities increased by $50,000 because the checking account is a liability. Cassets remained unchanged but liabilities increased by $100,000 because of the loan. Od-assets increased by $100,000 because the loan is an asset, and liabilities increased by $100,000 because the checking and saving accounts are liabilities.
5. Josh wants to save for his college education. He plans to make equal monthly deposits for four years. The savings account he has chosen will pay annual interest of 2% cornpounded monthly. (1 r): - 1 a. Use the future value formula F = I(1 + r)' + A ' + A ( ¹² + 1)² - ¹) t to write an algebraic rule that expresses ? the balance at the end of four years as a function of the amount Josh deposits each month. (initial deposit is $0.00) 48 F(48 months) = 0(1+.02) " + A((1+.02) .02 - 1) 48 Unit 4.1.1 → 4.1.4 (2 b. To which function family does this function belong? Explain your choice. c. Josh wants to have $5,000 at the end of the four years. Write an equation that could be used to determine how much Josh needs to save each month, solve the equation. then (find the monthly deposit needed if you start with =0)
5. Suppose the Bank of England (the UK's Central Bank) determines the reserve rate (rr) to be 15% and all banks should follow this rate when lending. (a) Using the fractional-reserve banking theory, calculate how much credit can be created in the UK economy if the initial loan is £300,000 and all created loans are deposited in another bank account and the number of banks involved in this process goes to infinity. (Show all your calculations) (b) Heterodox economists believe that while the theory of fractional-reserve banking brings the creation of credit by banks into the discussion of money supply, the theory suffers from the fact that the money supply is still exogenous. Explain this view through the relation between money supply (M) and the monetary base (H) discussed in the lecture.