Scenario M1 M2 Monetary base 19. Marc transfers $500 from his savings to his checking account 20. Cynthia deposits $200 cash into her savings account     21. Joffrey burns a $100 bill to impress a girl (don’t do this—it’s illegal and she won’t be impressed) 22. A bank uses $1,000 of its reserves to make a cash loan 23. A bank sells the Federal Reserve $10,000 worth of treasury bonds. The bank receives $10,000 as excess reserves in exchange for the bonds 24. A business transfers $20,000 from a money market account to their checking account 25. Maria withdraws $250 cash from her checking account out of an ATM machine

Which of the following is not included in either M1 or M2?   Question 28 options:   a)  U.S. Treasury bills   b)  small time deposits   c)  demand deposits   d)  money market mutual funds

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Transaction One: Open a Bank and Accept Deposits Name your Bank Draw a T-Account Representing Deposits of $2 million Transaction Two: Grant a Loan The Reserve Requirement is 20% Customer A wants to borrow $1 million. Customer B wants to borrow $400,000. Customer C wants to borrow $300,000. Can you fulfill all three loan requests? Draw a T-Account Representing a bank that is fully “loaned up” (reduce the loan amount to Customer C if necessary) Transaction Three: Follow the Money Creation Process Customer A deposits his loan with his home bank, Bank of Taylor Draw a T-Account Representing this transaction for Bank of Taylor assuming they already have $1.5 million in deposits and loans in the amount of $700,000 Transaction Four: Calculate the Money Creation Effect What is the money multiplier rate in this example? If banks in this economy are always fully loaned up, calculate how much money was created in this economy from the original three loans made by your bank (the amount that…

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Question 45              M1 money includes all of the following except   Question 45 options:   a)  savings accounts   b)  traveler’s checks   c)  checking accounts   d)  currency in circulation

Money functions as a medium of exchange because it is readily exchangeable for other goods. A) True B) False

The banking industry A) should have an efficiency advantage in gathering information that would eliminate the need for the money markets. B) exists primarily to mediate the asymmetric information problem between saver-lenders and borrower-spenders. C) is subject to more regulations and governmental costs than the money markets. D) all of the above are true. E) only A and B of the above are true.

Which of the following components is not included in the M2 definition of money?     A)  small-denomination time deposits.   B)  bonds.   C)  savings deposits.   D)  M1

9.     How would you incorporate security considerations/costs into the transactions demand model? What would this imply for the demand for currency in a relatively insecure urban environment (a) compared with a relatively safe one, (b) when owner-identified smart cards become available? Do these factors affect the demand for demand deposits? How would the proportion of currency to demand deposits be affected in these cases? 10.      Can the transactions demand model be used to explain why financial innovations in recent decades have reduced the transactions demand for M1? 11.      Are transactions demand models useless, as Sprenkle (1969) argued? If they are, how would you explain the demand for M1 or just for demand deposits in the economy?