hold You deposit all of this cash into your bank account. The banks have a requi
ID: 1108276 • Letter: H
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hold You deposit all of this cash into your bank account. The banks have a required reserve ratio of 12%, and do not exceed this level The Fed injects an extra s6,000 into the economy, by buying some bonds from you that you no longer want to On a series of balance sheets i.e. showing bank assets, and liabilities and net worth), trace through the first three rounds of transactions Assume that when the bank lends money, all of this money is deposited back into the banking system. In a, after three of s6,000)? In a, after all rounds, how much additional money will have been created? In a, what is the value of the "money multiplier? Now repeat a, but assume that only80% of the value of the bank loans is redeposited in the banking Ine, after three rounds, how much additional money is there in the economy? Ine, after all rounds, how much additional money will have been creat Ine, what is the value of the money multiplier? (Follows straightforwardly from g1 2. More on Money Creation Indicate which of the following statements are true and which are false, if false, explain why a. Ifthe reserve ratio of a bank falls below the level required by the Fed, it may borrow cash from the Fed at the reigning discount rate. b. The purchase of government securities (i.e. bonds and bills) from the public by the Fed will begin a contraction in commercial bank credit. c d. If a bank is loaned up (G.e. has no excess reserves above the legal minimum), this means its loans equal its If money is to remain generally acceptable as a medium of exchange, and to act as a unit of account and store of value, then it must consist of something that is useful and desirable for its own sake. deposits The demand for money will be higher when incomes are higher, and will be lower when interest rates are lower e. f. Inflation always benefits debtors and hurts creditors. g. Nobody gains when pure, perfectly anticipated inflation occurs. But nobody loses either. 3 Inflation across countries The file IrlUKinflation.xis has information on the CPlinflation rates for Ireland and the UK from 196a through 2015 a. Graph both series on the same diagram. Be sure the lahels on thoExplanation / Answer
Answer:- if the reserve ratio of a bank falls below the level required by FED, it may borrow cash from the fed at the reigning discount rate
Correct Answer:- True
Reason:- When the required reserve ratio falls below the specified value, the banks take the money from FED at the rate which is termed as discount rate or window discount.
Answer:- The purchase of government securities from the public by the fed will begin a contraction in commercial bank credit
Correct Answer:- False
Reason:- the purchase of government bonds in the open market by the Federal Reserve Banks will increase commercial bank reserves
Answer:- If the money is to remain the generally acceptable as a medium of exchange and to act as a unit off account and store of value, then it must consist of something that s useful and desirable for its own sake
Correct Answer:- True
Reason:- To serve as a measure of value, a medium of exchange, be it a good or signal, needs to have constant inherent value of its own
Answer:- the demand for money will be higher when incomes are higher and will be lower when interest rates are lower
Correct Answer:- False
Reason:- At the low interest rates, money demand will be high as people will not invest their money due to lesser interest rates.
Answer:- Inflation always benefits debtors and hurts creditors
Correct Answer:-True
Reason:- inflation always hurts wage earners, always hurts creditors, always benefits debtors, always aids entrepreneur
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