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Understanding Money Supply Dynamics

The document discusses various aspects of banking, including the role of money as a medium of exchange, the impact of loans and deposits on a bank's balance sheet, and the effects of the Federal Reserve's bond purchases on the money supply. It includes calculations related to reserves, liabilities, and the money multiplier effect. Additionally, it outlines strategies for increasing the money supply through bond purchases.

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Braden Scott
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5 views3 pages

Understanding Money Supply Dynamics

The document discusses various aspects of banking, including the role of money as a medium of exchange, the impact of loans and deposits on a bank's balance sheet, and the effects of the Federal Reserve's bond purchases on the money supply. It includes calculations related to reserves, liabilities, and the money multiplier effect. Additionally, it outlines strategies for increasing the money supply through bond purchases.

Uploaded by

Braden Scott
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

O

0 120 4
O

O 1000 200 5

200 1000617 100

O
1. a. Yes, medium of exchange
b. No, not a unit of exchange
c. No, not a medium of exchange
d. No, not a medium of exchange

2.
Assets Liabilities Uncle's wealthhas not
Reserves 10 Deposit100 changed Hesimply repayed
Loans 0 what hetook out
3.
Assets Liabilities
12 25mil D 250mi
L 225mi
b.
Assets Liabilities
12 24mil D 240mil
L 216mi
c. Less banks can borrow from the BSB so will not be able to cover de cits
d. Loans make them money. Encourage more deposits or make loans themselves.

4. $100. $1000.

6. $100million. Money Multiplier (10) time 10. $10million, banks can choose to hold on to all of it.

7. The money supply will increase more when the Fed buys bonds because they are creating money while the deposit has the $2000 already
in circulation. The Fed creates $40,000 and the deposit creates $38,000. Multiple the $2000 by 5 and for the deposit subtract $2000.

8. There is $100,000 more in reserves and money supply increase by $10,000,000. The bank might do so that it can pay back any loans it
took out from other banks. The money multiplier doesn’t change and the money supply increases by the same amount as before.

9. a. 10. Money supply is $1,000,000,000


b. Reserves are now $200 billion. The money supply is now $500 billion.

10. a. Buy bonds


b. $8 million worth of bonds. It will be multiplied by 5 to get $40 million.

11. a. $2000
b. $2000
c. $2000
d. $20000
e. $15000

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