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?  

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  1. Identify and briefly explain the three specific functions of money that economists have identified.
  2. Briefly describe the items that are included in the M1 and M2 definitions of money.
  3. What are the financial institutions that make up our banking system?
    1. Briefly describe their role and function.
    2. Briefly explain the role played by banks between savers and borrowers and the economic benefit, if any, derived from their taking on this role.
  1. How many Federal Reserve banks are there?
    1. Where is the closest bank?
    2. Name the current Federal Reserve Chair?

 

  1. 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.

 

  1. 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.

 

  1. Assume that banks are able to lend out 85 cents on every dollar deposited, and a bank receives $9,000 in deposits.  [18 points]
    1. What is the reserve requirement?
    2. Find the money multipler.
    3. How much money is ‘created’ from the $9,000 deposit?
    4. If the reserve requirement is altered to 10%, what will this do to the money supply?
    5. What does this do to equilibrium interest rate in the market for loanable funds?  (Show on a graph.)
    6. What is another way the Federal Reserve will achieve the same outcome in Part D?

 

  1. If the reserve requirement is 20%, and total deposits are $1,500,000.00, how much must a bank maintain in reserves?
    1. What is the money multiplier?
    2. How large is the money supply created from these deposits?

 

 

Reference no: EM132069492

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