Economics
Fall 2018
HW #3
40 points
1. Given the following balance sheet for Bank Y, complete the questions below:
|
Assets |
Liabilities |
|
Cash and Deposits with Fed 100 |
Checkable Deposits 200 |
|
Loans 20 |
Net Worth 100 |
|
Bank Property and Assets 50 |
|
|
Investments 130 |
|
Assume a 20% reserve requirement:
1.How much do banks have in excess reserves?
2.How much is the additional maximum quantity of money that could be created?
3. If the Fed buys $5 billion in securities from the public and it is deposited in commercial banks, how can the money supply change?
2. A.The quantity theory of money argues that the long-run price levels move in proportion to changes in the money supply. Answer the following questions based upon that assumption:
a. Money Supply (M) 2000
Price level (P) 10
Quantity (Y) 500
Calculate the velocity of money for this data.
B. Based on the quantity theory of money assumptions, what would happen if the money supply increased to 2200?