BUSN 5260 CURRENT ECONOMIC ANALYSIS WEEK 7 ASSIGNMENT
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BUSN 5260 Current Economic Analysis Week 7 Assignment
Problem 1
You have just inherited $100,000 from your rich uncle Sam. Being the conservative sort, you rush to your local bank and deposit the entire windfall. The reserve requirement is currently 10 percent. What is the immediate impact on the balance sheet of the bank? Mention each account affected and the appropriate amount. Also, assuming your bank lends out money to the extent allowed by law, how much will the money supply grow beyond the initial $100,000 deposit?
You have just inherited $100,000 from your rich uncle Sam. Being the conservative sort, you rush to your local bank and deposit the entire windfall. The reserve requirement is currently 10 percent. What is the immediate impact on the balance sheet of the bank? Mention each account affected and the appropriate amount. Also, assuming your bank lends out money to the extent allowed by law, how much will the money supply grow beyond the initial $100,000 deposit?
Problem 2
Explain thoroughly why credit cards are not technically money.
Explain thoroughly why credit cards are not technically money.
Problem 3
Come up with an alternative money to currency. Remember, currency is cash. Do not use any of the other forms of money, such as checks, debit cards, etc. (Also, please do not use precious metals or jewels). Justify your selection using the three characteristics of money.
Come up with an alternative money to currency. Remember, currency is cash. Do not use any of the other forms of money, such as checks, debit cards, etc. (Also, please do not use precious metals or jewels). Justify your selection using the three characteristics of money.
Problem 4
Under what circumstances might the Fed want to shrink (contract) the money supply? Be sure to relate your answer to the resulting effect on the Aggregate Demand/Aggregate Supply model.
Under what circumstances might the Fed want to shrink (contract) the money supply? Be sure to relate your answer to the resulting effect on the Aggregate Demand/Aggregate Supply model.
Problem 5
Assuming the Fed chooses to shrink the money supply, explain how each of the three tools would be used.
Assuming the Fed chooses to shrink the money supply, explain how each of the three tools would be used.
Problem 6
Explain as thoroughly as you are able, the mechanism that causes a shrinking money supply to result in a change in interest rates.
Explain as thoroughly as you are able, the mechanism that causes a shrinking money supply to result in a change in interest rates.
Internet Questions
Question 1
Visit: http://research.stlouisfed.org/fred2/categories/25
Visit: http://research.stlouisfed.org/fred2/categories/25
Go to the St. Louis Fed website and complete the following
assignment. Scroll down and select M1 Money Stock. I want you to report the
Monthly “Not Seasonally Adjusted” data for the most recent month and for
January, 1965 (click on View Data on the left side of the page) for each of the
following: M1 Money Stock, the Currency Component of M1, Demand Deposits at
Commercial Banks, Other Checkable Deposits, and Traveler’s Checks Outstanding.
Calculate and show the percentage change between January 1965
and the most recent month for M1 Money Stock each of the components. How has
the relative composition of M1 changed since 1965? Do your best to explain why
this change has occurred.
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