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  1. #1
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    Macroeconomic geniuses gtfih for 1.7k measly reps and help me

    Hovering welcome.

    inb4 tl;dr

    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?




    Part 2:

    Suppose the reserve requirement is 10% and the balance sheet of the People's National Bank looks like the following:

    Assets:

    Vault cash: 20,000
    Deposits at Fed: 30,000
    Securities: 45,000
    Loans: 120,000

    Liabilities:

    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.
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  2. #2
    reppin aussiebrahs E77's Avatar
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    Originally Posted by E-PRO View Post

    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.
    Just looked briefly, all look good except above. Money supply should not change. Whether Person A holds $100 currency, or person B holds that $100 currency, net currency still = $100.
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  3. #3
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    Originally Posted by E77 View Post
    Just looked briefly, all look good except above. Money supply should not change. Whether Person A holds $100 currency, or person B holds that $100 currency, net currency still = $100.
    Ok cool that's what I was thinking too but wasn't sure if that meant the Fed bought bonds or something.
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  4. #4
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    B decreases m1 and increases m2

    C Doesn't change as debit cards are essentially the same as cheque account/using cheques..

    Edit:
    Had my intro to macro exam 5 days ago. Hopefully did Okay. Econ major.
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  5. #5
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    Originally Posted by ToddlerSquattin View Post
    B decreases m1 and increases m2

    C Doesn't change as debit cards are essentially the same as cheque account/using cheques..
    For B, m2 wouldn't increase because m1 is included in m2, so basically when m1 decreases that same value increases in m2 so overall m2 stays the same.

    For C, I'm not sure if debit cards are included in either the M1 or M2 money supply.
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  6. #6
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    Originally Posted by E-PRO View Post
    For B, m2 wouldn't increase because m1 is included in m2, so basically when m1 decreases that same value increases in m2 so overall m2 stays the same.

    For C, I'm not sure if debit cards are included in either the M1 or M2 money supply.
    Oh yeah you're right about B.

    For C
    http://www.shmoop.com/money-banking/...ey-supply.html
    First paragraph.

    "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."
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  7. #7
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    Originally Posted by ToddlerSquattin View Post
    Oh yeah you're right about B.

    For C
    http://www.shmoop.com/money-banking/...ey-supply.html
    First paragraph.

    "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."
    Ah, I just checked my book and it said, "if you want to buy something from a store, many will let you pay with either a check or debit card that will transfer funds from your bank account to theirs. Therefore, checkable bank deposits should be included in the M1 money supply measure."

    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.
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  8. #8
    Live.Laugh.Love<3 #SwAg neighborr's Avatar
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    C wouldnt change
    Last edited by neighborr; 10-31-2012 at 10:26 PM.
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  9. #9
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    Originally Posted by neighborr View Post
    It's impossible for M2 to change without M1 changing brah
    lol no because M1 doesn't include Savings deposits, small time deposits and MMMFs. M1 could stay the same while there could be a decrease in MMMFs or something so M2 would decrease.
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  10. #10
    Live.Laugh.Love<3 #SwAg neighborr's Avatar
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    Originally Posted by E-PRO View Post
    lol no because M1 doesn't include Savings deposits, small time deposits and MMMFs. M1 could stay the same while there could be a decrease in MMMFs or something so M2 would decrease.
    oh **** i had it backwards lol. disregard my comment.
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  11. #11
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    Originally Posted by neighborr View Post
    oh **** i had it backwards lol. disregard my comment.
    That's cool, at least your comment prompted me to research some of this so I know for later...

    http://www.ny.frb.org/aboutthefed/fedpoint/fed49.html

    "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.
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  12. #12
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    Mishkin Text?
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  13. #13
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    Originally Posted by LukePie View Post
    Mishkin Text?
    I'm not sure if you're asking about where my problems are from but mine are from here: http://www.amazon.com/Macroeconomics...+public+choice

    Except mine is a newer edition.
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