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228 Chapter 25 Answers to End-of-Chapter Problems and Applications 2. As the Chinese government was being defeated, Chinese paper currency was ceasing to be fiat money, but, at least in Japan, had become a commodity money. 4. There is no effect on M1 because both currency and checking account balances are included in that measure of the money supply. Because M1 is not affected, neither is M2. 6. Deposits. Having more deposits allows these banks to make loans and other investments on which they are able to make profits. 8. There is no impact. The $100 was part of M1 when it was in your checking account and is still part of M1 when you hold it as currency. 10. Yes. The statement is correct. When bank reserves increases, they increase their loans, which creates new checking account deposits, thereby expanding the money supply. 12. a.Assets Liabilities Reserves +$2,000 Deposits +$2,000Bank of America
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Money, Banks, and the Federal Reserve System 229 b. c. Assets Liabilities Reserves +$2,000Deposits +$2,000 Bank of America Loans +$1,600Deposits +$1,600 Assets Liabilities Reserves +$400 Deposits +$2,000 Bank of AmericaLoans +$1,600Assets Liabilities Reserves +$1,600Deposits +$1,600 Citibank Bank