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Exam 14: Money, Banking, and Money Creation

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Question 21

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Give an equation that shows the relationship between excess cash reserves,maximum demand-deposit expansion,and the monetary multiplier.

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The maximum deposit expansion = excess c...

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Question 22

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Provide three key reasons why money has value.

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First,currency and demand deposits (M1 d...

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Question 23

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Determine the purchasing power of $1 at each of the price levels indicated in the table and enter in the spaces provided.

What are the three functions that a commodity must fulfill to be useful as money?

What are Mortgage-Backed Securities and how are they created?

What are near monies?

What is meant by the overnight lending rate?

Suppose depositors at chartered banks transfer $10 billion from their savings deposits to their demand deposits.What impact does this have on M1,M2,and M2+?

When would money that is declared legal tender be worthless?

Answer the next questions based on the following balance sheet for a chartered bank.Assume the desired reserve ratio is 33%.

Suppose a fraction of any new loan was kept as cash and not deposited into a bank.How would this currency drain affect multiple-deposit expansion?

What is the function of the Canadian Payments Association (CPA)?

What is the main method banks and other savings institutions use to make profits?

How does deterioration in the quality of borrowers affect multiple-deposit expansion?

What is the difference between the M2 and M2+ definitions of the money supply?

Banks pursue two conflicting goals.Explain what they are and why the conflict.

Suppose the First National Bank has the following simplified balance sheet.The reserve ratio is 20% and all dollar figures are in thousands.

Describe the nature,causes,and effects of the U.S Mortgage Default Crisis.

Define the desired reserve ratio.

What happens to the money supply when a bank accepts deposits of currency from the public and places it in demand deposits?