Course Textbook: McEachern, W. A. (2015). ECON macroeconomics (4th ed.). Stamford, CT: Cengage Learning
Chapter 13: Questions 9 and 10
Chapter 14: Questions 6, 8, and 9
Chapter 15: Questions 1, 2, and 9
Your completed Homework assignment should be at least three to four pages in length. All sources used, including the textbook, must be referenced; paraphrased and quoted material must have accompanying citations. All references and citations used must be in APA style.
CH: 13
- (Federal Reserve System)What are the main powers and responsibilities of the Federal Reserve System? What are its two mandates and some of it’s other goals?
- (Subprime Mortgages)What are subprime mortgages, and what role did they play in the financial crisis of 2008?
CH: 14
- (Money Creation)Show how each of the following would initially affect a bank’s assets and liabilities.
- Someone makes a $10,000 deposit into a checking account.
- A bank makes a loan of $1,000 by establishing a checking account for $1,000.
- The loan described in part (b) is spent.
- A bank must write off a loan because the borrower defaults.
- (Monetary Tools)What tools does the Fed have to pursue monetary policy. Which tool does it use the most?
- (Monetary Control)Suppose the money supply is currently $500 billion and the Fed wishes to increase it by $100 billion.
- Given a required reserve ratio of 0.25, what should it do?
- If it decided to change the money supply by changing the required reserve ratio, what change should it make? Why may the Fed be reluctant to change the reserve requirement?
CH: 15
- (Money Demand)Suppose that you never carry cash. Your paycheck of $1,000 per month is deposited directly into your checking account, and you spend your money at a constant rate so that at the end of each month your checking account balance is zero.
- What is your average money balance during the pay period?
- How would each of the following changes affect your average monthly balance?
- You are paid $500 twice monthly rather than $1,000 each month.
- You are uncertain about your total spending each month.
- You spend a lot at the beginning of the month (e.g., for rent) and little at the end of the month.
- Your monthly income increases.
- (Market Interest Rate)With a diagram, show how the supply of money and the demand for money determine the rate of interest? Explain the shapes of the supply curve and the demand curve.
- (Money Supply Versus Interest Rate Targets)Assume that the economy’s real GDP is growing.
- What will happen to money demand over time?
- If the Fed leaves the money supply unchanged, what will happen to the interest rate over time?
- If the Fed changes the money supply to match the change in money demand, what will happen to the interest rate over time?
- What would be the effect of the policy described in part (c) on the economy’s stability over the business cycle?
