Assignment 2a Assignment

Satisfactory Essays
Assignment 2A Submission
A3.a) A minimum fraction of what customers can deposit and the amount of notes commercial banks can reserve.

b) The money multiplier

A5.a) Since the M1 monetary aggregate is associated with bank takes and types of deposits, will cause a change in the types of deposits the bank accepts. M1 monetary aggregate includes cash deposits, demand deposits, and travelers checks. However, if the bank began declining travelers checks and deposits, the monetary aggregate would be M0.

A7.a) Excess reserves are reserves in excess of a reserve requirement set by a central bank.

b) They are called “the stuff from which bankers create loans” because as stated, money deposited as a term is used as loans meaning whatever is deposited
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However, these individuals can also transfer these funds into their checking accounts when needed which causes a smaller M1 amount.

A7.a) The ratio of nominal GDP to M2.

b) In todays society, money balances can be easily switches to accounts on which checks can be written to accounts paying interest. This alters the M1 because these checking accounts are in M1 but interest-paying accounts are not making for an unpredictable M1 velocity. M2 velocity on the other hand is unaffected.

c) The main problem is the relationship between spending and M1. This created conflict for a policy targeting on M1 growth because as we know, M2 velocity is more stable. With this, targeting on M2 instead of M1 will should the situation.

A9.a) This can be inflationary because if all Government debts are paid, the Government has a lot more to spend which will cause a heavy increase in consumption and investment and finally, inflation will rise.

b) The “long-run” qualification is added because if you take on more of a nations debt, in the long-run inflation is sure to rise. As debts are paid in the short-term, there is a lot more money to spend in the long term causing inflation.
A11.a) Decreased interest
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