Discussion:
1. How would the following influence the growth rates of M1 and M2 money supply figures over time?
a) An increase in the quantity of US currency held overseas.
b) A shift of funds from interest-earning checking deposits to money markets mutual funds.
c) A reduction in holdings of currency by the general public because debit cards have become more popular and widely accepted
d) The shift of funds from the money market mutual funds into stock and bond mutual funds because the fees to invest in the later have declined.
2. Supposed that the reserve requirement is ten percent and the balance sheet of the People's National Bank? Does the bank looks like the accompanying examples.
ASSETS LIABILITIES
vault cash - $20,000checking deposits - $200,000
deposits at fed - 30,000net worth - 15,000
securities - 45,000
loans - 120,000
a) What are the required reserves of people national bank? Does the bank have any excess reserves? Required reserves are $20,000 and excess reserves are $30,000
b) What is the maximum loan that the bank could extend?
c) Indicate how the banks' balance sheet would be altered if it extended this loan.
d) Suppose that the required reserves were 20 percent. If this were the case, would the bank be in a position to extend any additional loans? Explain.
3. Historically, shifts towards a more expansionary monetary policy have often been associated with increases in real output. Is this surprising? Why or why not? Can an expansion in the money supply increase real output and employment? Why or why not? Can
4. What impact will an unanticipated increase in the money supply have on real interest rate, real output and employment in the short run? How will expansionary monetary policy affect these factors in the long run? Explain.
5. Did monetary policy contribute to the economic crisis of 2008? Why or why not? How did monetary policy makers respond to this crisis? Has their response created an environment for future stability and growth? Explain.