Macroeconomics
- If dollar bills (Federal Reserve notes) are backed by nothing but promises and are in real terms worthless, why do people accept them?
- What are the three functions of money?
- Assuming individuals hold no currency, calculate the money multiplier each of the following reserve ratios: 3 percent, 10 percent, 20 percent, 25 percent, 50 percent, 75 percent, and 100 percent.
- State whether the following is an example of the transactions, precautionary, or speculative motive for holding money.
- I like to have the flexibility of buying a few things for myself such as a latte or snack, every day, so I generally carry $10 in my pocket.
- I never know when my car will break down, so I always keep $50 in my pocket.
- When the stock market is falling, money managers generally hold more in cash than when the stock market is rising.
- Any household has bills that are due every month.
- Demonstrate the effect of contractionary monetary policy in the AS/AD model.
- Demonstrate the effect of expansionary monetary policy in the AS/AD when the economy is
- Below potential output
- Significantly above potential output
- Write the formula for the money multiplier. If the Fed eliminated the reserve requirement, what would happen to the money multiplier and supply of money?
- If the Federal Reserve announces a change in the direction of monetary policy, is it describing an offensive or defensive action? Explain your answer.
- Economist Michael Bryan reports that on the island on Palau, the Yapese used stone disks as their currency. The number of stones in front of a person house denoted how rich he or she was.
- Would you expect these stones to be used for small transactions?
- An Irish- American trader, David O’ Keefe, was shipwrecked on the island with a boatload of stones. If they were identical to the existing stones, what would that do to the value of the stones?
- If O’Keefe’s stones could be distinguished from the existing stones, how would that change your answer to b?
- An anthropologist described the stones as “a memory of contributions”—the more stones a person has, the more that person has contributed to the community. Could the same description be used to describe our money?
- You can lead a horse to water, but you can’t make it drink. How might this this adage be relevant to expansionary (as opposed to contractionary) monetary policy?
- We have witness for the first time since the Great Depression a “run “on the bank in the Great Britain. The financial system in Iceland actually collapsed causing the government of Iceland to go bankrupt. The collapse of Northern Rock in England and the collapse of Iceland financial system showed the extent of the financial crisis. Should the U.S. government have bailed out the private brokerage firms, insurers, and the commercial banks in the United States to prevent a collapse of the financial system here in the U.S? Is it wise for global economics to be interconnected if such an event as the financial crisis can cause such a global economic collapse?P(5.u)
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