COVID-19 has resulted in many persons being unable to work and has led to a decrease in economic activity in the Caribbean and the rest of the world. (a) Carefully explain and illustrate the effect of this decrease in economic activity on the money market.

COVID-19 has resulted in many persons being unable to work and has led to a decrease in economic activity in the Caribbean and the rest of the world. (a) Carefully explain and illustrate the effect of this decrease in economic activity on the money market.

ECON MACRO

5th Edition

ISBN:9781337000529

Author:William A. McEachern

Publisher:William A. McEachern

Chapter13: Money And The Financial System

Section: Chapter Questions

Problem 1.4P

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Concept explainers

Required Reserve and Excess Reserve Analysis

A required reserve is an amount of cash that banks must keep with themselves, which is certain percentage of the deposits made by their customers. Required reserve is a percentage of the bank's deposits that the respective bank must have on each overnight. The percentage rate is set and determined by the nation’s central bank. It is important to have such funds accumulated to meet its uncertain obligations, sudden liabilities and withdrawals. Required reserve is also known as reserve ratio. Reserve ratio is an important tool to control the money supply.

Question

COVID-19 has resulted in many persons being unable to work and has led to a decrease in
economic activity in the Caribbean and the rest of the world.

(a) Carefully explain and illustrate the effect of this decrease in economic activity on the money market.

Definition Definition Financial market that deals in securities or assets that are short-term in nature. The money market is responsible for keeping up the liquidity of the businesses and the organizations. These securities are usually held for a period of 12 months or less and are issued by institutions that require cash or funds for their short-term cash flow requirements. The money market is regulated by the federal government.

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