Liberty ECON 214 Problem Set 5 Answers
- What are the three functions of money? Which function is the defining characteristic?
- How is the discount rate different from the federal funds rate?
- Consider the balance sheet for the Wahoo bank as presented below.
|Wahoo Bank Balance Sheet|
|government securities||$1,600||Liabilities: Checking accounts||$4,000|
|Required Reserves||$400||Net Worth||$1,000|
|Total Assets||$5,000||Total Liabilities||$5,000|
Using a required reserve ratio of 10% and assuming that the bank keeps no excess reserves, write the changes to the balance sheet for each of the following scenarios:
- Bennett withdraws $200 from his checking account.
- The Fed buys $1,000 in government securities from the bank.
4) Using a required reserve ratio of 10% and assuming that banks keep no excess reserves, which of the following scenarios produces a larger increase in the money supply, explain why.
- a) Someone takes $1000 from under his or her mattress and deposits it into a checking account.
- b) The Fed purchases $1,000 in government securities from a commercial bank.
5) Using a required reserve ratio of 10% and assuming that banks keep no excess reserves, what is the value of government securities the Fed must purchase if it wants to increase the money supply by $2 million?