4. Critical analysis Q14 Indicate how each event in the following table would affect M1 and M2. Event Effect on M1 Effect on M2 A shift of funds from money market mutual funds into stock and bond mutual funds Decrease V Decrease v because fees required to invest in the latter have declined Decrease/ Increase/ No change Deacrease/ |ncrease/ No change A shift of funds from interest-earning checkable deposits to money market mutual funds Decrease V No change V Decrease/ Increase/No change Drease/ Increase! No change Grade It Now Save & Continue Continue without saving Back to Assignment Attempts J. I I Do No Harm I 3 5. Critical analysis Q15 Suppose that the Federal Reserve purchases a bond for $50,000 from Juan, who deposits the proceeds in the Manufacturer's National Bank. Initially, as a result of this bond purchase, the money supply will 7 by . Decrease/ Increase If banks maintain reserves of 20% against their checking deposits, Manufacturer's Bank will be able to extend in additional loans. If other banks also maintained reserves against their checkable deposits of 20%, the maximum potential expansion of the money supply would be Continue without saving Back to Assignment Attempts 15' .g. 6. Critical analysis Q16 Do No Harm1.5f3 Suppose that the reserve requirement is 10% and the following table shows the balance sheet of the People's National Bank. Assam Vault Cash Deposits at Fed Securities Loans $10,000 $15,000 $45,000 $50,000 Liabilities Checkable Deposits Net Worth $100,000 $20,000 The required reserves of People's National Bank are , while the excess reserves are . Thus, if this bank wanted to extend a loan, the maximum amount for this additional loan would be. Assuming the bank extends this loan, the total amount of loans in the bank's balance sheet would be . Suppose the reserve requirement increases to 20%. The bank would only be in a position to extend additional loans amounting to . Continue without saving Back to Assignment Attempts 2 Do No Ham 2 I3 7. Critical analysis Q17 Suppose that the reserve requirement is 20% and that the Federal Reserve purchases $1 billion in bonds from a brokerage firm. Initially, as a result of this bond purchase, the money supply will V by billion. Suppose the brokerage firm that sold the bonds to the Fed deposils the proceeds of the sale into its account with Nation's Bank. As a result of this depositl Nation's Bank will be able to extend billion in additional loans. Suppose that additional loans are extended throughout the banking system and that the proceeds are always redeposited back into checking accounts. The M1 money supply will increase by billion if banks use all of their additional reserves to extend additional loans. Grade It Now Save 8: Continue Continue wilhout saving