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Why are banks able to maintain reserves that are only a fraction of the demand and saving deposits of their customers? Is your money safe in a bank? Why or why not? Suppose you withdraw $100 from your checking account. How does this transaction affect (a) the supply of money, (b) the reserves of your […]

The excess reserves of the banking system were quite large during mid-year 2011. If the banks use these excess reserves to extend additional loans, what will happen to the money supply? Explain. Is this a potential problem? Why or why not?

Why do people hold money? How will an increase in the interest rate influence the amount of money that people will want to hold? How would each of the following influence the quantity of money you would want to hold? a. an increase in the interest rate earned on checking deposits b. an increase in

If the Fed wants to expand the money supply, why is it more likely to do so by purchasing bonds and other financial assets rather than by lowering reserve requirements? Are the following statements true or false? a. “You can never have too much money.” b. “When you deposit currency in a commercial bank, cash

If the Federal Reserve does not take any offsetting action, what would happen to the supply of money if the general public decided to increase its holdings of currency and decrease its checking deposits by an equal amount? What is the federal funds interest rate? If the Fed wants to use open market operations to

Why do people hold money? How will an increase in the interest rate influence the amount of money that people will want to hold? How would each of the following influence the quantity of money you would want to hold? a. an increase in the interest rate earned on checking deposits b. an increase in

If the Fed wants to expand the money supply, why is it more likely to do so by purchasing bonds and other financial assets rather than by lowering reserve requirements? Are the following statements true or false? a. “You can never have too much money.” b. “When you deposit currency in a commercial bank, cash

Historically, shifts toward 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?

“Regulatory policies that restrict trade and voluntary agreements between parties will retard economic progress.” Indicate why you either agree or disagree with this statement. What must an entrepreneur do in order to introduce a new innovative product? What determines whether the new product will be a success or failure? How important is innovation as a

“Without aid from industrial nations, poor countries are caught in a poverty trap. Because they are poor, they are unable to save and invest; and, lacking investment, they remain poor.” Evaluate this view. What happened to economic growth between 1000 and 1800? How did the situation change after 1800? Why were these two periods so