05 Jun Question What is the most important function of money? In
Question
What is the most important function of money? In other words what is the most important reason why we have money? Why? 5 points
Define M1 and M2. What is the current value of M1 and M2? Answer can be found at www.federalreserve.gov . Go to the statistical releases and click on money stock measures. 5 points.
What is the role of the Fed in the US economy? 5 points.
Define: 5 points
A. Required Reserves
B. Excess Reserves
C. Required Reserve Ratio
D. Money Multiplier
If the RR = to 20%, and there is a new deposit of $10,000, what is the maximum the money supply can expand. Show all work. 5 points
If the RR = 25%, and there is a new deposit of $10,000, what is the maximum the money supply can expand. Show all work. 5 points.
Why in questions 5 – 6 above, does the increase in the money supply decrease. 5 points
If the RR = 20%, and there is a withdrawal of $20,000, what happens to the money supply? Why? Show all work. 5 points
Define: 5 points
A. Discount Rate
B. Reserve Ratio as a tool of monetary policy
C. Open Market Operations.
D. Federal Funds market.
A. Why is the Federal Funds Market the most watched interest rate in the economy? 5 points
What is the current Federal Funds interest rate? What was the Federal Funds interest rate in April of 2008? 5 points
b. If we have demand for money curve and a supply of money curve and the Ms increases, what happens to the interest rate? Why? 5 points.
c. If the supply of money curve decreases what happens to the interest rate? Why? 5 points
d. The Fed recently adopted a policy called “quantitative easing”.
1. Define quantitative easing (See pages 975-76 & page 894 in the text.) 5 points
2. What specifically is quantitative easing supposed to accomplish? Use your own words and refer back to my discussion of the tools of monetary policy. 5 points.
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