Quiz 4 - Sam Fonseca Macroeconomics Quiz 4 1. Commodity...

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Sam Fonseca Macroeconomics Quiz 4 1. Commodity monies have intrinsic value, meaning they have an alternative use apart from serving as money. Gold is a commodity money since it has many other uses, such as jewelry or dental fillings. Fiat money is money that is intrinsically worthless. The actual value of fiat money comes from the government that backs that money, meaning they ensure that it is accepted. Legal tender is the paper money that a government provides. The government declares that it's money must be accepted in settlements of debt. 2. To make a legal tender into a money, governments will often times require that the legal tender be used in order to pay taxes. They also promise the public that they will debase the currency, meaning not print money so fast that it looses it's value. A money's value decreases when it's supply is rapidly increased, so governments control the supply of the legal tender. 3. a. M1 stays the same, M2 decreases by $500,000. b. M1 decreases by $10,000, M2 stays the same. c. M1 increases by $5000, M2 stays the same. 4. a. Excess reserves are $30,000 b. The bank can make up to $150,000 in loans since they currently have $50,000 loaned out, $50,000 in reserve and their total deposits can only equal $250,000. c. Money multiplier is 5 5. Yes, thank bank could make a loan in the amount of $90,000 as long as the loan stays in the bank. A 20% required reserve ratio means the bank has excess reserves of $80,000. Since the money multiplier is 5, they can make loans of up to $400,000, assuming the loans stay in the bank. 6.
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This note was uploaded on 02/12/2012 for the course ECON 2301 taught by Professor Mcelroy during the Fall '09 term at University of Texas at Dallas, Richardson.

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Quiz 4 - Sam Fonseca Macroeconomics Quiz 4 1. Commodity...

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