Exercise 5-2 Correct! Important policy objectives of the federal government include economic growth, high employment, price stability, and a balance in international transactions. The achievement of these objectives is the responsibility of monetary policy, fiscal policy, and debt management carried out by the Federal Reserve System, the President, the Congress, and the U.S. Treasury. Describe the responsibilities of the various policy makers in trying to achieve the four economic policy objectives. Answer : The Federal Reserve System helps establish monetary policy. This includes managing the supply of money as well as the cost. The president and Congress carry out fiscal policy. Fidcal policy invovles setting an annual budget. It also shows the government influence on activity. This is accomplished through taxation and expenditure plans. The U.S. treasury is directly involved with debt management practices.
Problem 5-2 Answer: Enter the answers in blue shaded cells a. ASSETS LIABILITIES Reserves 100,000.00 Deposits 100,000.00 b. ASSETS LIABILITIES Correct! Reserves 100,000.00 Deposits 190,000.00 Loans 90,000.00 c. ASSETS LIABILITIES Reserves 10,000.00 Deposits 100,000.00 Loans 90,000.00 Assume that Bank A receives a primary deposit of $100,000 and that it must keep reserves of 10 percent against deposits. a. Prepare a simple balance sheet of assets and liabilities for the bank immediately after the deposit is received. b. Assume Bank A makes a loan in the amount that can be “safely lent.” Show what the bank’s balance sheet of assets and liabilities would look like immediately after the loan. c. Assume that a check in the amount of the “derivative deposit” created in Part b was written and sent to another bank. Show what Bank A’s (the lending bank’s) balance sheet of assets and liabilities would look like after the check is written.
Problem 5-6 Answer: a. Money multiplier 10% b. Money supply 250000000 Correct! Assume a financial system has a monetary base of $25 million. The required reserves ratio is 10 percent and there are no leakages in the system. a. What is the size of the money multiplier? b. What will be the system’s money supply?
Discussion Question 7-17 Correct!
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- Spring '12
- Monetary Policy, gross domestic product, blue shaded cells, a. corporate stocks