Question
Part 1. Considering the following data (expressed in billions of U.S. dollars), calculate Ml and M2. Currency 1,050 Savings deposits 5,500 Small-denomination time deposits 1,000
Part 1. Considering the following data (expressed in billions of U.S. dollars), calculate Ml and M2.
Currency
1,050
Savings deposits
5,500
Small-denomination time deposits
1,000
Traveler's checks outside banks and thrifts
10
Total money market mutual funds
800
Institution-only money market mutual funds
1,800
Transactions deposits
1,140
Part 2. Identify whether each of the following amounts is counted in Ml only, M2 only, both Ml and M2, or neither.
- $50 billion in U.S. Treasury bills
- $15 billion in small-denomination time deposits
- $5 billion in traveler's checks not issued by a bank
- $20 billion in money market deposit accounts
Part 3. Identify whether each of the following events poses an adverse selection problem or a moral hazard problem in financial markets.
- A loan applicant does not mention that a legal judgment in his divorce case will require him to make alimony payments to his ex-wife.
- An individual who was recently approved for a loan to start a new business decides to use some of the funds to take a Hawaiian vacation.
Part 4. Draw an empty bank balance sheet, with the heading "Assets" on the left and the heading "Liabilities" on the right. Then place the following items on the proper side of the balance sheet:
- Loans to a private company
- Borrowings from a Federal Reserve district bank
- Vault cash
- Transactions deposits
Part: 5 Below, you are provided with statements related to the four different functions of money. You will identify which function of money is being described in eachstatement.
1: Complete the statement below.
Jason earned $400 per month as a server when he was in high
school and saved of this income each month. Today, three years
later, Jason uses this money to buy his books at the University of
Pennsylvania. This statement refers to money's function as a(n)
____________________________ (medium of exchange, unit of account,
store of value, standard of deferred payment).
2: Complete the statement below.
Sally produces knitted mittens, and Jess produces orange juice. With
money, Sally can purchase some of Jess's orange juice without Jess
wanting any mittens. This statement refers to money's function as
a(n) ____________________________ (medium of exchange, unit of
account, store of value, standard of deferred payment).
3: Complete the statement below.
Terry buys a car for $15,000. He is able to take out a loan and make
specified payments in the future. This statement refers to money's
function as a(n) ____________________________ (medium of exchange,
unit of account, store of value, standard of deferred payment).
4: Complete the statement below.
Eduardo makes peanut butter, but wants to buy eggs. Jeff makes
jelly, but wants to buy eggs. With money, we do not need two prices
for eggs, one in jars of peanut butter and another in jars of jelly.
This statement refers to money's function as a(n)
____________________________ (medium of exchange, unit of account,
store of value, standard of deferred payment)
- Part 6Issues & Applications: Why U.S. Taxpayers Are Last-Resort Funders of Much of the Financial Industry (pp. 343-344)
6. Even though the federal government requires depository institutions to contribute premiums to the FDIC, who ultimately has to provide sufficient funds if the FDIC runs out of cash?(Hint: The FDIC borrowed funds from the U.S. Treasury in 1991 and 2009.)
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