1.
List the 4 functions of money and provide an
everyday example of each.

2.
For each of the following
transactions, place an X in the table to indicate whether direct or indirect financing
is utilized:

Financing
Activity

Direct

Indirect

Fred Flintstone borrows $20,000 to purchase a new
car

Boeing issues $500 million in 10 year bonds to
finance a joint production facility in China

Gloria deposits $10,000 in a money market fund

Airbus North America borrows $5 million from Bank of
America for working capital

Sabre Holdings issues an Initial Public Offering
(IPO) of stock

3.
Define M1 and M2

4. The following questions address money creation in the banking
system. Assume the required reserve
ratio is 10%.

a.
Define bank reserves in the US
banking system.

b.
A large banks liabilities
include $1 billion ($109) in checkable deposits. What are the Required Reserves?

c.
The same bank has assets that
include $100 million in vault cash and $1 billion on deposit at the Federal
Reserve Bank. What are the excess
reserves, if any?

d.
What is the theoretical money
multiplier? Show the computation.

e.
A bank has $100 million in
excess reserves that it wishes to lend.
Through the lend-spend-deposit cycle, by how much could the money supply
theoretically expand?

f.
List 3 reasons the actual money
multiplier will be less than the theoretical maximum.

5.
Go once again to FRED (St Louis
Federal Reserve Bank). Find the graph
for M1 money multiplier (search within FRED).

a.
What has been the trend for the
money multiplier since 1985?

b.
What was the highest M1 money
multiplier? When did this occur?

c.
What is the current M1 money
multiplier?

d.
If banks have excess reserves
to support lending, but firms and households do not wish to borrow, what affect
will this have on the money multiplier?

1.
List the 4 functions of money and provide an
everyday example of each. 2.
For each of the following
transactions, place an X in the table to indicate whether direct or indirect financing
is utilized:Financing
ActivityDirect IndirectFred Flintstone borrows $20,000 to purchase a new
carBoeing issues $500 million in 10 year bonds to
finance a joint production facility in ChinaGloria deposits $10,000 in a money market fundAirbus North America borrows $5 million from Bank of
America for working capitalSabre Holdings issues an Initial Public Offering
(IPO) of stock3.
Define M1 and M24. The following questions address money creation in the banking
system. Assume the required reserve
ratio is 10%. a.
Define bank reserves in the US
banking system.b.
A large banks liabilities
include $1 billion ($109) in checkable deposits. What are the Required Reserves?c.
The same bank has assets that
include $100 million in vault cash and $1 billion on deposit at the Federal
Reserve Bank. What are the excess
reserves, if any?d.
What is the theoretical money
multiplier? Show the computation.e.
A bank has $100 million in
excess reserves that it wishes to lend.
Through the lend-spend-deposit cycle, by how much could the money supply
theoretically expand?f.
List 3 reasons the actual money
multiplier will be less than the theoretical maximum.5.
Go once again to FRED (St Louis
Federal Reserve Bank). Find the graph
for M1 money multiplier (search within FRED).
a.
What has been the trend for the
money multiplier since 1985?b.
What was the highest M1 money
multiplier? When did this occur?c.
What is the current M1 money
multiplier? d.
If banks have excess reserves
to support lending, but firms and households do not wish to borrow, what affect
will this have on the money multiplier?