#13 The balance sheet of the central bank shows the following (all measured in millions of domestic currency): Currency held by the public: 240 Currency held by other depository corporations (ODCs) that is cash in vaults: 30 Liabilities to ODCs: 170 Liabilities to the rest of the economy included in Broad Money: 0 Government deposits: 70 Central bank holdings of government debt: 370

#13 The balance sheet of the central bank shows the following (all measured in millions of domestic currency): Currency held by the public: 240 Currency held by other depository corporations (ODCs) that is cash in vaults: 30 Liabilities to ODCs: 170 Liabilities to the rest of the economy included in Broad Money: 0 Government deposits: 70 Central bank holdings of government debt: 370

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Similar questions

Consider an economy in which the money supply consists of both currency and deposits. The growth rate of the monetary base, the growth rate of the money supply, inflation, and expected inflation all are constant at 10% per year. Output and the real interest rate are constant. Monetary data for this economy as of January 1, 2016, are as follows: Currency held by nonbank public $200 Bank reserves $50 Monetary base $250 Deposits $600 Money supply $800 a. What is the nominal value of seignorage over the year? (Hint: How much monetary base is created during the year?) b. Suppose that deposits and bank reserves pay no interest, and that banks lend deposits not held as reserves at the market rate of interest. Who pays the inflation tax (measured in nominal terms), and how much do they pay? (Hint: The inflation tax paid by banks in this example is negative.) c. Suppose that deposits pay a market rate of interest. Who pays the inflation tax, and how much do they pay?
§Suppose that the T-account for First National Bank is as follows: Assets Liabilities Reserves: 90.000-TL Deposits: 500.000-TL Loans: 410.000-TL § §If the Central Bank requires banks to hold 10% of deposits as reserves, how much in excess reserves does First National Bank now hold? MM=1/rr MM=1/(10/100) MM=10 40000*10=400000TL §Assume that all other banks hold only the required amount of reserves. If First National decides to reduce its reserves to only the required amount, by how much would the economy’s money supply increases?
_______ is the most liquid measure of money supply
Suppose that this year's money supply is $1,200 billion, nominal GDP is $6,000 billion and real GDP is $5,000 billion. (This question concerns the Equation of Exchange in the Classical Quantity Theory of Money). a) What is the price level (expressed as a percentage-i.e., as a price index)? b) What is the velocity of money? c) Suppose that velocity is constant and the economy's output of goods and services rises by 6 percent each year. If the Fed keeps the money supply constant, what will nominal GDP be next year? d) Under the conditions in c) what will happen to the price level next year? e) What money supply should the Fed set next year if it wants to keep the price level stable? 1) What money supply should the Fed set next year if it wants the inflation rate to be 8 percent?
14. What are the implications of a liquidity trap for the Federal Reserve? A liquidity trap is a situation in a severe ( expansion, recession ) in which the central bank's injection of additional reserves into the banking system has ( little or no, too much excessive ) additional positive impact on lending, borrowing, investment, or aggregate demand. The implication is that the Fed can create excess reserves, (and it can, but it cannot ) guarantee that banks will want to make additional loans. Households and businesses may not want to borrow, and the money received from the Fed's purchase of securities may be used to pay off existing loans rather than to increase their purchases of goods and services.
The Money Supply: Small Time Deposits (less than $100,000) Demand Deposits and other Checkable Deposits Savings Deposits Money Market Accounts for individuals: Money Market Checking Accounts = $15 billion Money Market Savings & Investment Accounts = $10 billion Money Market Mutual Funds' Accounts (less than $100,000) Currency Large Dollar Accounts (over $100,000): Money market mutual funds for individuals, businesses, governments $650 billion $300 billion $445 billion. $645 billion. $325 billion. $880 billion. $750 billion $25 billion $600 billion $130 billion $100 trillion MZM (money-with-zero-maturity) measures the value of the money supply in circulation for households and businesses to immediately buy goods and services. Given the above listed financial data, MZM calculates to: services. Given the above listed financial data, MZM
Bank Balance Sheet Assets Liability and Equity Required Reserves: $ 0.30 million Deposits: $ 1.50 million Excess Reserves: $ 1.80 million Equity: $ 1.50 million Government Bonds: $ 0.90 million Remember, new money creation has a multiplier effect. That means that our desired $6 million increase in the money supply doesn't require us to buy a full $6 million in bonds from banks. Further, our analysis indicates that as long as banks in our economy can make loans, they will -- in other words, they won't choose to hold excess reserves instead of lending them out. Let's say we decide to transact with Typical Bank again, and remember that the required reserve ratio is 0.2. To increase the money supply by $6 million, how much should we increase Typical Bank's excess reserves? _____ million
Discuss factors that determine the demand and supply of money in the financial system
What are the official measures of money? What are the official measures of money? Item $billions Item $billions Are all the measures really money? Are all the measures really money? Non-chequable, non-personal deposits Chequable deposits Non-chequable, personal deposits Fixed term deposits 375 Non-chequable, non-personal deposits Chequable deposits Non-chequable, personal deposits Fixed term deposits Currency outside banks 325 The two main official measures of money in Canada today are 100 The two main official measures of money in Canada today are 100 250 230 The two main official measures of money in Canada really money. 140 320 The two main official measures of money in Canada really O A. M1 and currency; are not Currency outside banks 100 90 money. YB. M1 and M2; are YA. M1 and M2; are O C. currency and M2; are O B. M2 and M3; are not O D. M2 and M3; are not O C. currency and M2; are The table shows the amounts held as the various components of M1 and M2. O D. M1 and currency; are…
> Question 13 You have been given the banking and financial data in the following table. Your boss wants you to calculate the M1 money multiplier (using the U.S. laws and regulations) but forgets to tell you which year the data pertain to. You call your boss and she tells you that the data is for 2018. In that case, you calculate the following for your boss: Currency in Circulation $100 Demand Deposits $1,000 Savings Deposits $4,400 Small Time Deposits (Less than $100,000) $2,000 Large Time Deposits (Greater than $100,000) $4,000 Money Market Mutual Funds Deposits Owned by Individuals $1,000 Money Market Mutual Funds Deposits Owned by Institutions $5,000 Total Reserves in the Banking System $2,100 O a. m = 0.30 O b. m = 0.50 O c. m = 0.75 d. m = 1.50 O e. m = 2.50
QUESTION 4 Consider the model of money demand we saw in class. Let the elasticity of money demand with respect to real income be 0.8 and the elasticity of money demand with respect to the interest rate on non-monetary assets be -0.2. Imagine that real income goes up by 3%, the interest rate on non-monetary assets goes up by 1%, and the price level does not change. Then the nominal demand for money changes by percent. Note: Type in your answer rounded to two decimal places, i.e., your answer must be of the form "999.99". I will not be able to fix correct answers that were entered incorrectly, such as "999.999" or "999,99" or "999". In case the last digit in the correct answer is zero, e.g., "999.90" or "999.00", Blackboard may automatically delete it and you should not do anything about it. In case of percentages, do not type in the percentage symbol "%". If your answer is a negative number, type a dash in front of your answer, i.e, "-999.99".
1. Debit cards allow an individual to transfer funds directly in a checkable account to a merchant without writing a check. How is this different from the way credit cards work? Are either credit cards or debit cards money? Explain. 2. How would each of the following affect the demand for money? a tax on bonds held by individuals a forecast by the Central bank that interest rates will rise sharply in the next quarter 3. Trace the impact of a sale of government bonds by the Central bank on bond prices, interest rates, investment, aggregate demand, real GDP, and the price level. 4. The text notes that a 10% increase in the money supply may not increase the price level by 10% in the short run. Explain why. 5. Suppose the Central bank were required to conduct monetary policy so as to hold the unemployment rate below 4%. What implications would this have for the economy?