Liberty
University ECON 214 Problem
Set 5 solutions answers right
1) What
are the three functions of money? Which function is the defining
characteristic?
2) How
is the discount rate different from the federal funds rate?
3) Consider
the balance sheet for the Wahoo bank as presented below.
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Wahoo Bank Balance Sheet
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Assets
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Liabilities
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government securities
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$1,600
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Liabilities: Checking accounts
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$4,000
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Required Reserves
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$400
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Net Worth
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$1,000
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Excess Reserves
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$0
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|
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Loans
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$3,000
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|
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Total Assets
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$5,000
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Total Liabilities
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$5,000
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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:
a. Bennett
withdraws $200 from his checking account.
b. Roland
deposits $500 into his checking account.
c. The
Fed buys $1,000 in government securities from the bank.
d. The
Fed sells $1,500 in government securities to 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?
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