Assignment
1. Answer the following questions in detail:
a. Define monetary policy.
b. List and explain each of three instruments of monetary policy.
c. Describe the process and purpose of an easy monetary policy.
d. Explain what the FED would do with each of the three instruments to implement an easy monetary policy.
2. Complete the following table for a new deposit of $5,000 at the First State Bank.
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Required Reserve Ratio
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Required Reserves
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Excess Reserves
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Money Created by this Bank
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Money Multiplier
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Money Created by all Banks
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3%
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4.0%
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5.0%
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3. Mary deposits $4,000 of newly printed money in her checking account of Bank A. The FED has set rr = 5%. Complete the following table as money travels from one bank to the next.
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Bank
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New DD
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Change in TR
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Change in RR
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Change in ER
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Money Cretaed by this Bank
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Money Multiplier
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Money Cretaed by all Banks
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A
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4,000
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B
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C
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D
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Other Banks
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Total
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4. Commercial banks have $5,000 million in Reserves. In an easy monetary policy, the FED drops the Required Reserve Ratio (rr) from 5% to 4%. Find the increase in the money supply.