MACRO CALCULATIONS FOR PROTEACH ONLY

Problem Set 5

(HINT: Make certain you have done the Internet Activity #5 before doing this Problem Set #5!)

QUESTIONS 1-2 ONLY: Compute M1 and M2 given the following. Assume any asset not listed has a zero value.

 

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Asset Amount(Billions of Dollars)
Currency and Coins not in bank vaults 110
Savings Deposits 220
Checkable Deposits 300
Small Time Deposits of less than $100,000 200
Credit Card Balances 140
Stock and Bond Mutual Funds 100
Traveler’s Checks 120
Nonbank Public Holdings of US Savings Bonds 45
  1. Calculate M1.
  2. Calculate M2.

     

  3. Suppose Aunt Sophie transfers $1,000 to her savings account from her checking account. What happens to the value of M1 and to M2?
  4. Suppose Uncle Nacho sells shares of Time Warner stock for $20,000 and puts the proceeds from the sale into his money market mutual fund account. What happens to the value of M1 and to M2?
  5. Why aren’t credit card balances included in M1 or M2?
  6. What are the two reasons people wish to hold money?
  7. Which of the reasons for holding money gives the demand curve for money its downward slope? Why?

SKIPPING SOME QUESTIONS THAT I ALREADY HAVE ANSWERS TO—- SKIPS TO 24.

 

 

  1. What happens to the federal funds rate when the Federal Reserve increases bank excess reserves and the money supply through open market operations?
  2. What happens to the federal funds rate when the Federal Reserve decreases bank excess reserves and the money supply through open market operations?
  3. How might the Federal Reserve implement an expansionary monetary policy? Describe how the FED might use its three major policy tools to accomplish this.
  4. How might the Federal Reserve implement a restrictive or contractionary monetary policy? Describe how the FED might use its three major policy tools to accomplish this.
  5. How do lags affect monetary policy?

Questions 29-32: Suppose a bond with no expiration date has a face value of $5,000 and pays a fixed amount of interest of $500 annually.

  1. What is the interest yield on the bond when its market price is $6,000?
  2. What is the interest yield on the bond when its market price is $12,000?
  3. What is its market price when its interest yield is 5%?
  4. What is its market price when its interest yield is 8%?

Questions 33-40: The Second National Bank has vault cash in the amount of $500,000, outstanding loans of $200,000, buildings worth $700,000, U.S. government securities worth $100,000, and checkable deposits of $1,500,000.

 

  1. Identify and list each of this bank’s assets.
  2. Identify and list each of this bank’s liabilities.

Questions 35-40:Assume the bank faces a reserve ratio of 5%. What is the value of

  1. required reserves
  2. excess reserves
  3. monetary multiplier
  4. the maximum amount that money supply can be changed
  5. As a nationally chartered “bank”, which agency gave it the power to do banking?
  6. As a nationally chartered “bank”, which agency insures its depositors?
 
 

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