List the 3 Functions of Money & explain each:

1.

2.

3

Types of Money:

1. Commodity Money is

1. Fiat Money is

Draw & fully label the Money Market below List the Shifters of Money Demand:

List the Shifters of Money Supply:

Money Multiplier Practice: Fill in the blanks

1. Assume the reserve requirement is .10. If the Fed buys $10 billion worth of bonds the money supply will ___________ by _____________ billion.

2. Assume the reserve requirement is .20. If the Fed sells $10 billion worth of bonds the money supply will ___________ by _____________ billion.

3. Assume the reserve requirement is .10. If the Fed buys $5 billion worth of bonds the money supply will ___________ by _____________ billion.

4. Assume the reserve requirement is .50. If the Fed sells $5 billion worth of bonds the money supply will ___________ by _____________ billion.

4. Assume the reserve requirement is .25. If the Fed sells $2 billion worth of bonds the money supply will ___________ by _____________ billion.

Shifter Practice: Fill in the blanks

1. If the FED increases the reserve requirement the money supply will ___________ and interest rates ___________.

2. If the FED sells bonds the money supply will ________ interest rates _________, and investment ____________.

3. If the FED decreases the reserve requirement the money supply will ___________ and interest rates ___________.

4. If the FED decreases the discount rate, the money supply will ___________ and interest rates ___________.

5. If the FED buys bonds the money supply will__________ interest rates __________, and investment ___________.

Define the Federal Funds Rate:

Limited Reserves Framework

Assume the country is experiencing a recessionary gap. Illustrate the money market graph to show how the FED closes the recessionary gap using monetary policy. Then illustrate that effect on an AD/AS graph. Then write a sentence to explain this process.

Limited Reserves Framework

Assume the country is experiencing an inflationary gap. Illustrate the money market graph to show how the FED closes the inflationary gap using monetary policy. Then illustrate that effect on an AD/AS graph. Then write a sentence to explain this process.

Loanable Funds Market

Draw & fully label the Loanable Funds Market:

List the Shifters of Demand for Loanable Funds:

List the Shifters of Supply for Loanable Funds :

1. Explain what happens to the real interest rate if the government begins to deficit spend?

1. If lenders decide to lend less, real interest rates ____________, investment ___________, and economic growth ______________.

Ample Reserves

Draw a reserves graph below. Then show on the graph & explain how the central bank would combat an inflationary gap & the result to real GDP.

Ample Reserves

Draw a reserves graph below. Then show on the graph & explain how the central bank would combat a recessionary gap & the result to real GDP.

1. In a banking system with ample reserves, which of the following would the central bank do to fight inflation?

a. buy bonds

b. raise discount rate

c. raise interest on reserve

d. raise taxes

e. raise Federal Funds rate

2. In a banking system with ample reserves, how would the central bank respond to a recessionary gap?

a. buy bonds

b. increase the reserve ratio

c. raise the discount rate

d. lower the rate on reserves (IOR)

e. target a higher range for the federal funds rate