Economics

  

Macroeconomics 2301

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?