2. Suppose your bank lowers its minimum balance requirement by $500. So you take $500 out of your checking account and invest in Money Market Mutual Funds. What is the overall effect on M1 and M2? a. M1 falls by $500, M2 rises by $500. b. M1 is unchanged, M2 is unchanged. c. M1 falls by $500, M2 is unchanged. d. M1 is unchanged, M2 rises by $500.

2. Suppose your bank lowers its minimum balance requirement by $500. So you take $500 out of your checking account and invest in Money Market Mutual Funds. What is the overall effect on M1 and M2? a. M1 falls by $500, M2 rises by $500. b. M1 is unchanged, M2 is unchanged. c. M1 falls by $500, M2 is unchanged. d. M1 is unchanged, M2 rises by $500.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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1.4 Suppose you transfer $4,000 from your money market mutual fund account to your checking account. What is the immediate impact of this transfer on M1 and M2? 1.5 Why do banks create money? Do they create money to help the Federal Reserve control the money supply or is there a more basic reason? 1.6 Suppose that the required reserve ratio is 2 percent, and you deposit $100,000 of currency into Chase Bank. What is the potential increase in deposits in the banking system brought about by your deposit? What is the potential change in the money supply?
2. Determine whether each of the following is included in both M1 and M2 or M2 only: a. a Connecticut quarter b. a savings account at a local savings bank c. a share draft account at a credit union d. money market deposit accounts e. American Express travelers' checks
9. Which of the following would not be included as part of M2? demand deposits money market accounts checking accounts none of the above
7. John transfers $150 from his money market fund to his checking account. This transaction will: decrease M2 and increase M1. increase M1, but leave M2 unchanged. decrease M1 and increase M2. decrease both M1 and M2.
11 . Let there be $100 new deposit in a bank. a) Calculate the money multiplier for a reserve requirement ratio of 20% for five iterations. Identify the total money created, the total required reserves, and the total excess reserves. b) Assume the currency to deposit ratio is 10%. Recalculate the money multiplier from the previous question a for five iterations. Identify the total money created, the total required reserves, and the total excess reserves. Show your work
John Antonio transfers $5000 from his checking account to his savings account. How are M1 and M2 affected by this decision? a.M1 increases and M2 decreases b.M1 and M2 remain the same c.M1 decreases and M1 increases d.M1 increases and M2 increases e.M1 decreases and M2 decreases
M1 and M2 are two measures of money supply. M1 includes only the most liquid forms of money like currency, checking account deposits, and traveler’s checks. M2 includes all of M1 along with some less liquid forms of money like savings accounts and money market deposits. Suppose you transfer $2,000 from your mutual fund account to your checking account. What is the immediate impact of this transfer on M1 and M2 as per the economy?
Suppose Alice withdraws $10,000 from her savings account to purchase shares in a money market mutual fund. Alice's action will cause _______ in the M1 money supply and _______ in the M2 money supply, everything else held constant. Select one: an increase; no change an increase; a decrease a decrease; no change a decrease; an increase
why does m2 fall and not remain unchanged? doesn't M2 consist of both M1 and M2? so when M1 rise (due to more cash), savings account (which is under M2) will drop by the same amount as M1 rise, hence overall M2 will remain unchanged?
1.Name a reason why retail Money Market Mutual Funds are not included in M1 but demand deposits and other checkable deposits are. What specific role of money does this analysis (e.g. medium of exchange, standard of value, standard of deferred payments, store of value) pertain to? 2.Passbook savings accounts and NOW accounts (part of checkable deposits) are both interest bearing bank deposits, but NOW accounts have checkable privileges and passbook savings accounts have no checkable privileges. Then why would anyone have a passbook savings deposit? Provide the economic concept behind this argument 3.Choose an interest rate other than the 3 month Treasury Bill rate or the Federal Funds rate. Provide a definition for this interest rate. Now consider the website of the Federal Reserve Economic Database (FRED), given by http://research.stlouisfred.org/fred2/. Using this database, look up the series for monthly observations for this interest rate, and provide a graph of this…
suppose the required reserve ratio is 30%. How much can the entire banking system loan out? 2. if the entire amount of excess reserves were loaned out, what would happen to Money supply? 3. Now suppose the required reserve ratio was raised to 40%, and assume all excess reserves are lent out, what is the maximum amount of money the banking system could lend? 4. using the same situation as in “c”, suppose now that an entity, bought $1 T worth of bonds from the banking system. What is your answer to “c”?
Assume that a bank receives a deposit of $1,000 in cash, puts aside $200 as required reserves, and makes a loan of $800, these transactions imply that: a) the money supply by the whole banking system can increase by $1,000. b) the money supply by the whole banking system can increase by $4,000. c) the money supply by the whole banking system can increase by $8,000.