1. Assume that the following asset values (in millions of dollars) exist in Ironmania: Federal Reserve Notes in circulation $700; Money market mutual funds (MALNIFs) held by individuals = $400; Corporate bonds = $300; Iron ore deposits $50; Currency in commercial banks = $100; Saving deposits, including money market deposit account (MMDAs) = $140; Checkable deposits = $1500; Small denominated (less than $100,000) time deposits $100; Coins in circulation = $40.
a. What is M1 in Ironmania?
b. What is M2 in Ironmania?
2. Assume that Jimmy Cash has $2000 in his checking account at Folsom Bank and uses his checking account card to withdraw $200 of cash from the bank's ATM machine. By what dollar amount did the MI money supply change as a result of this single, isolated transaction?
3. Suppose the price level and value of the U.S. dollar in year are I and $1, respectively. If the price level rises to 1.25 in year 2, what is the new value of the dollar? If, instead, the price level falls to .50, what is the value of the dollar?
4. Suppose that Lady Gaga goes to Las Vegas to play poker and at the last minute her record company says it will reimburse her for 50 percent of any gambling losses that she incurs. 1Vill Lady Gaga wager more or less as a result of the reimbursement offer? What economic concept does your answer illustrate?
5. Assume that securitization combined with borrowing and irrational exuberance in Hyperville have driven up the value of existing financial securities at a geometric rate, specifically
from $2 to $4 to $8 to $16 to $32 to $64 over a six-year time period. Over the same period, the value of the assets underlying the securities rose at an arithmetic rate from $2 to $3 to $4 to $5 to $6 to $7, If these patterns hold for decreases as well as for increase by how much would the value of the financial securities decline if the value of the underlying asset suddenly and unexpectedly fell by $5?
6. Suppose the assets of the Silver Lods bank are $100,000 higher than on the previous day and its net worth is up $20,000. By how much and in what direction must its liabilities have changed from the day before?
7. Suppose that Serendipity Bank has excess reserves of $8000 and checkable deposits of $150,000. If the reserve ratio is 20 percent, what is the size of the bank's actual resents?
8. Third National Bank has reserves of $20,000 and checkable deposits of $100,000. The reserve ratio is 20 percent. Households deposit $5000 in currency into the bank and that currency is added to reserves. What level of excess reserves does the bank now have?
9. The balance sheet below is for Big Bucks Bank. The resent ratio is 20 percent.
a. What is the maximum amount of new loans that Big Bucks Bank can make? Show in columns 1 and 1' how the bank's balance sheet will appear after the bank has lent this additional balance amount.
b. By how much has the supply of money changed?
c. How will the bank's balance sheet appear after checks drawn for the entire amount of the new loans have been cleared against bank? Show the new balance sheet in columns 2 and 2'.
d. Answer questions a, b, c and c on the assumption that the reverse ratio is 15 percent.