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Q1. What are the functions of money? Are debit cards and credit cards money? Q2. Suppose the banks receive $100 cash from a new
Q1. What are the functions of money? Are debit cards and credit cards money? Q2. Suppose the banks receive $100 cash from a new deposit of funds previously held outside the banking system. If banks operate with a 5% reserve ratio, use simple balance sheets to show by how much this new cash would affect lending and deposits of all banks in the system. Make a consolidated Balance Sheet for all the banks when the system reaches equilibrium. Q3. Suppose a crisis in financial markets, like the collapse of public willingness to hold large denomination term deposits in 2007 and 2008, increases the risk banks attach to lending and the non-bank public attaches to all bank deposits. What are the implications for the desired reserve ratio, the money supply multiplier, and the money supply? 10%
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