True or False + Explanation

Explain why each of the following statements is True, False, or Uncertain according to economic principles. Use diagrams where appropriate and show your calculations. Unsupported answers will receive no marks. It is the explanation that is important. A2-1 Imagine that you held one Bitcoin that had increased in value from $30,000 to $40,000 in the span of a year. This would mean that your money holdings would have increased by $10,000. [Hint: Think about the 3 functions of money.] A2-2. Suppose the consolidated balance sheet (T-account) of the banking system for an economy with a regulated reserve ratio of 10% is given below. If the regulator decreases the reserve ratio to 8%, the money supply will increase by 250. [Hint: Assume that the public holds all its money in the form of bank deposits.] Assets: Liabilities: Reserves 100 Deposits 1000 Government Bonds 300 Loans Outstanding 800 Capital 200 Total 1200 Total 1200 A2-3. If you pay $1000 for a $1000 bond that pays annual "coupon interest" equal to 5% and matures in 3 years, you will earn a "yield" of 5%. [Hint: Calculate the PV of the bond payments assuming a 5% yield. ] A2-4. A central bank that increases the money supply in its economy has more effect on spending the more interest rate responsive (elastic) is the money demand curve.Explain why each of the following statements is True, False, or Uncertain according to economic principles. Use diagrams where appropriate and show your calculations. Unsupported answers will receive no marks. It is the explanation that is important. A2-1 Imagine that you held one Bitcoin that had increased in value from $30,000 to $40,000 in the span of a year. This would mean that your money holdings would have increased by $10,000. [Hint: Think about the 3 functions of money.] A2-2. Suppose the consolidated balance sheet (T-account) of the banking system for an economy with a regulated reserve ratio of 10% is given below. If the regulator decreases the reserve ratio to 8%, the money supply will increase by 250. [Hint: Assume that the public holds all its money in the form of bank deposits.] Assets: Liabilities: Reserves 100 Deposits 1000 Government Bonds 300 Loans Outstanding 800 Capital 200 Total 1200 Total 1200 A2-3. If you pay $1000 for a $1000 bond that pays annual "coupon interest" equal to 5% and matures in 3 years, you will earn a "yield" of 5%. [Hint: Calculate the PV of the bond payments assuming a 5% yield. ] A2-4. A central bank that increases the money supply in its economy has more effect on spending the more interest rate responsive (elastic) is the money demand curve