It's easy and I answered them myself too so at least you get an idea if what I'm looking for.
The effect should be answered in the form of: increase, decrease, or no effect on the money supply.
a) an increase in the quantity of US currency held overseas
I said this increases the M1 money supply and increases the M2 money supply.
b) a shift of funds from interest-earning checking deposits to money market mutual funds
I said this decreases the M1 money supply but has no effect on the M2 money supply.
c) a reduction in the holdings of currency by the general public because debit cards have become more popular and widely accepted.
I said this decreases both the M1 and M2 money supply.
d) the shift of funds from money market mutual funds into stock and bond mutual funds because the fees to invest in the latter have declined.
I said this has no effect on the M1 money supply but decreases the M2 money supply.
Am I correct for these?
Suppose the reserve requirement is 10% and the balance sheet of the People's National Bank looks like the following:
Vault cash: 20,000
Deposits at Fed: 30,000
Checking Deposits: 200,000
Net Worth: 15,000
a) What are the required reserves of PNB? Does the bank have any excess reserves?
I answered that there are 20,000 in required reserves and 120,000 in excess reserves.
b) What is the maximum loan that the bank could extend?
I answered 180,000.
c) Indicate how the bank's balance sheet would be altered if it extended this loan, specifically the ASSETS in the above was extended as a loan.
I answered that loans would increase to 300,000.
d) Suppose that the required reserves were 20%. If this were the case, would the bank be in a position to extend any additional loans? Explain.
I answered that yes, the bank would be able to extend 160,000 since 80% of 200,000 is 160,000 and 40,000 would be kept as required reserves.
I'm not sure if I answered these correctly.
10-31-2012, 09:52 PM #1
Macroeconomic geniuses gtfih for 1.7k measly reps and help meHello! I am very sorry that you are reading this page right now instead of posting hilarious comedy on the internet. I'm sure this issue will resolve itself soon.
10-31-2012, 09:54 PM #2
"... and at some point you have to know that the very thing you've been taught to be afraid of, you've now grown into" - Kai Greene
- Join Date: Dec 2009
- Location: Sydney, NSW, Australia
- Age: 23
- Posts: 1,635
- Rep Power: 1931
10-31-2012, 09:55 PM #3
10-31-2012, 09:58 PM #4
10-31-2012, 10:02 PM #5Hello! I am very sorry that you are reading this page right now instead of posting hilarious comedy on the internet. I'm sure this issue will resolve itself soon.
10-31-2012, 10:05 PM #6
"Fiat money (paper currency and coins), however, makes up only a small part of America’s money supply. A much greater part consists of demand deposits, such as checking accounts, and “near money.” We may not think of checking accounts as money in the traditional sense, but almost half of all transactions today do not involve currency at all. Instead, they are completed through a transfer of funds initiated by the use of a check or a debit card. Near money includes things like savings accounts, certificates of deposit (CDs), and money market mutual funds. You can’t actually buy something with these; a retailer can’t subtract his charge from your savings account book. But these can be easily converted to cash or transferred to a checking account. In other words, they are not exactly but near money."
10-31-2012, 10:14 PM #7
So this means for part C, there is no effect on the M1 money supply since both currency and debit cards are in M1 so this will have no effect on M2 either.Hello! I am very sorry that you are reading this page right now instead of posting hilarious comedy on the internet. I'm sure this issue will resolve itself soon.
10-31-2012, 10:17 PM #8
10-31-2012, 10:25 PM #9
10-31-2012, 10:26 PM #10
10-31-2012, 10:32 PM #11
"By the early 1990s, the relationship between M2 growth and the performance of the economy also had weakened. Interest rates were at the lowest levels in more than three decades, prompting some savers to move funds out of the savings and time deposits that are part of M2 into stock and bond mutual funds, which are not included in any of the money supply measures."
That helps me for part D, so M1 stays the same and M2 decreases since MMMFs decrease.
10-31-2012, 10:37 PM #12
10-31-2012, 10:58 PM #13
Except mine is a newer edition.