Name:
- Identify and briefly explain the three specific functions of money that economists have identified.
- Briefly describe the items that are included in the M1 and M2 definitions of money.
- What are the financial institutions that make up our banking system?
- Briefly describe their role and function.
- Briefly explain the role played by banks between savers and borrowers and the economic benefit, if any, derived from their taking on this role.
- How many Federal Reserve banks are there?
- Where is the closest bank?
- Name the current Federal Reserve Chair?
- What are the three tools of the Federal Reserve? Briefly describe the tools used by a central bank to affect the money supply and identify which is the most powerful and commonly used method and which is the weakest method.
- Discuss the reserve requirements method of conducting monetary policy, including a description of this method, the types of adjustments banks are likely to be required to make and the effects on the economy that are likely to result.
- Assume that banks are able to lend out 85 cents on every dollar deposited, and a bank receives $9,000 in deposits. [18 points]
- What is the reserve requirement?
- Find the money multipler.
- How much money is ‘created’ from the $9,000 deposit?
- If the reserve requirement is altered to 10%, what will this do to the money supply?
- What does this do to equilibrium interest rate in the market for loanable funds? (Show on a graph.)
- What is another way the Federal Reserve will achieve the same outcome in Part D?
- If the reserve requirement is 20%, and total deposits are $1,500,000.00, how much must a bank maintain in reserves?
- What is the money multiplier?
- How large is the money supply created from these deposits?
