4 Macroeconomics LESSON 4
|
|
- Helen Davis
- 1 years ago
- Views:
Transcription
1 4 Macroeconomics LESSN 4 The Federal Reserve System and Its Tools Introduction and Description The focus of this lesson is the Federal Reserve System: how its actions relate to the money creation process introduced in the last lesson and how its tools affect the money supply. The Federal Reserve System is the central bank for the United States. It has regulatory authority for many financial institutions that hold checkable deposits. It has the responsibility to control the money supply to promote the economic goals of full employment, price stability and stable economic growth. The Fed has three tools it can use to control the money supply: open market operations, the discount rate and the required reserve ratio. The primary tool the Fed uses is open market operations, or the buying and selling of Treasury securities. Activity 38 provides the students with practice using T-accounts and the mechanics of implementing monetary policy. bjectives 1. Describe the structure of the Federal Reserve System. 2. Identify each of the tools of the Fed and explain how changes in each tool affect the money supply. 3. Explain basic balance sheets. Time Required ne class period or 45 minutes Materials Activity 38 Procedure 1. Describe the structure of the Federal Reserve System including the Board of Governors and the Federal pen Market Committee. Be sure to discuss the role of the chairman of the Federal Reserve. 2. Discuss each of the tools of the Fed. 3. Ask the students to explain, based on their knowledge of the money creation process, how each tool can be used to change the money supply. 4. Explain basic balance sheets of the Fed, the banking system and the bank customers. Explain how changes are evidenced in the different balance sheets. Be sure to explain that the left side of a balance sheet shows the assets, and the right side shows the liabilities. Further, the two sides of the balance sheet, including net worth, must sum to each other that is, net worth equals assets minus liabilities. 5. Have the students complete Activity 38. Review the answers with the students. Advanced Placement Economics Teacher Resource Manual National Council on Economic Education, New York, N.Y. 555
2 4 Macroeconomics LESSN 4 ACTIVITY 38 Answer The Federal Reserve: The Mechanics of Monetary Policy For Questions 1 through 4, start with the baseline case in Figure The Fed wishes to decrease the money supply from $353 to $303 by open market operations. The reserve requirement is 10 percent. 1. Will the Fed want to buy or sell existing Treasury securities? Sell 2. What is the money multiplier? What is the value of Treasury securities that need to be bought or sold? $5 4. Fill in Figure 38.3 to show the accounts after open market operations are finished and all changes have worked their way through the economy: Figure 38.3 After pen Market perations Are Finished Assets The Fed Liabilities Treasury securities ( $5) $78 $21 Reserve accounts of banks ( $5) Banks $57 Federal Reserve notes Reserve accounts ( $5) $ Checkable deposits ( $50) Federal Reserve notes $4 Loans ( 45) $360 $135 Net worth (to stockholders) Bank Customers Checkable deposits (- $50) $250 $360 Loans ( $45) Federal Reserve notes $53 Treasury securities (+ $5) $57 Money supply = $303 ($250 + $53) For Questions 5 through 7, suppose banks keep zero excess reserves and the reserve requirement is 15 percent. 5. What is the deposit expansion multiplier? 1 / 0.15 = Advanced Placement Economics Teacher Resource Manual National Council on Economic Education, New York, N.Y.
3 4 Macroeconomics LESSN 4 ACTIVITY 38 Answer 6. A customer deposits $100,000 in his checking account. (A) How much of this can the bank lend to new customers? $85,000 (B) How much must the bank add to its reserves? $15,000 (C) In what two forms can a bank hold the new required reserves? As vault cash or reserve accounts (deposits at the District Federal Reserve Bank) 7. Suppose that the $100,000 had previously been held in Federal Reserve notes under the customer s mattress and that banks continue to hold no excess reserves. By how much will the customer s deposit cause the money supply to grow? $566, A very low discount rate may (encourage banks to borrow / discourage banks from borrowing) from the Federal Reserve. Underline the correct answer and explain why. If banks are able to borrow from the Federal Reserve at a low interest rate and make loans at a higher rate, the banks will earn a profit and, hence, have an incentive to use the discount window. 9. The federal funds rate is the interest rate at which financial institutions can borrow from other financial institutions. Suppose the federal funds rate is 5 percent and the discount rate is 4.5 percent. Why is it that a bank might choose to borrow in the federal funds market, rather than getting the lower interest rate available through the discount window? Borrowing from another financial institution will have fewer transaction costs, plus the bank will not have the added scrutiny of its business practices that borrowing from the Federal Reserve will generate. 10. In a foreign country, the reserve requirement is 100 percent. What will be the deposit expansion multiplier? ne 11. If the Fed decided to implement a policy action designed to increase the money supply, in which direction would bank reserves and the federal funds rate change and why? If the Fed wants to increase the money supply, it will institute a policy to increase reserves (giving banks an increased ability to make loans). Banks have more money to loan to other banks, businesses and consumers, so the federal funds rate is likely to decrease. Advanced Placement Economics Teacher Resource Manual National Council on Economic Education, New York, N.Y. 557
4 4 Macroeconomics LESSN 4 ACTIVITY 38 Answer 12. Circle the correct symbol ( for increase, for decrease) in Figure Figure 38.4 Fed Actions and Their Effects Federal Reserve Action Bank Reserves Money Supply Fed Funds Rate A. Sold Treasury securities on the open market B. Bought Treasury securities on the open market C. Raised the discount rate D. Lowered the discount rate E. Raised the reserve requirement F. Lowered the reserve requirement 13. Indicate in the table in Figure 38.5 how the Federal Reserve could use each of the three monetary policy tools to pursue an expansionary policy and a contractionary policy. Figure 38.5 Tools of Monetary Policy Monetary Policy Expansionary Policy Contractionary Policy A. pen market operations Buy Treasury securities Sell Treasury securities B. Discount rate Lower the discount rate Raise the discount rate C. Reserve requirements Lower the required reserve ratio Raise the required reserve ratio 14. Why do banks hold excess reserves, which pay no interest? Banks are required by law to hold required reserves; they hold some excess reserves as a precaution in case of sudden withdrawals or changes in economic conditions. 558 Advanced Placement Economics Teacher Resource Manual National Council on Economic Education, New York, N.Y.
5 4 Macroeconomics LESSN 4 ACTIVITY 38 Answer 15. Why does the Fed rarely use the reserve requirement as an instrument of monetary policy? Changes in the required reserve ratio cause radical or strong changes in the monetary system. It is difficult for financial institutions to adjust to changes in the required reserve ratio. In general, the Fed uses the tools of monetary policy to adjust the economy in smaller increments. 16. What does it mean to say that the Fed changes the discount rate mostly as a signal to markets? The discount rate has no impact if banks do not borrow from the Federal Reserve; banks do not have to borrow because if they need funds, they can always go to the federal funds market. It signals to the banks and others how the Fed would like the money supply to change. 17. Why does the Fed currently target the federal funds rate rather than the money supply? The Fed uses changes in reserves to affect the federal funds rate. It targets the federal funds rate because the Fed believes that this rate is closely tied to economic activity. Advanced Placement Economics Teacher Resource Manual National Council on Economic Education, New York, N.Y. 559
Reference: Gregory Mankiw s Principles of Macroeconomics, 2 nd edition, Chapter 15. The Banking System and the Money Supply
Macroeconomics Topic 6: Explain how the Federal Reserve and the banking system create money (i.e., the supply of money) Explain the factors that affect the demand for money. Reference: Gregory Mankiw s
The Banking System and the Money Supply. 2003 South-Western/Thomson Learning
The Banking System and the Money Supply 2003 South-Western/Thomson Learning What Counts as Money MONEY Anything that is widely accepted as a means of payment What Counts as Money MONEY Anything that is
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
Exam Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) The government agency that oversees the banking system and is responsible for the conduct
Chapter 13 Money and Banking
Chapter 13 Money and Banking After reading Chapter 13, MONEY AND BANKING, you should be able to: Explain the three functions of money: Medium of Exchange, Unit of Account, Store of Value. Understand the
Describe the functions of the Federal Reserve System (the Fed).
The Monetary System Chapter CHAPTER CHECKLIST Define money and describe its functions. Money is any commodity or token that is generally accepted as a means of payment. Money serves as a medium of exchange,
ECON 4110: Money, Banking and the Macroeconomy Midterm Exam 2
ECON 4110: Money, Banking and the Macroeconomy Midterm Exam 2 Name: SID: MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Which of the following
Currency: The paper money and coins owned by people and business firms
WHAT IS MONEY? Things acceptable as a means of payment 2 TYPES OF MONEY 1. COMMODITY MONIES: 2. FIAT MONIES (TOKEN MONIES): DECREED BY THE GOV T AS LEGAL TENDER. The gov t promises the public that will
Chapter 12 Practice Problems
Chapter 12 Practice Problems 1. Bankers hold more liquid assets than most business firms. Why? The liabilities of business firms (money owed to others) is very rarely callable (meaning that it is required
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
Study Questions 5 (Money) MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) The functions of money are 1) A) medium of exchange, unit of account,
Chapter 14. The Money Supply Process
Chapter 14. The Money Supply Process C H A P T E R O B J E C T I V E S By the end of this chapter, students should be able to: 1. Describe who determines the money supply. 2. Explain how the central bank
Macroeconomics, 8e (Parkin) Testbank 1
Macroeconomics, 8e (Parkin) Testbank 1 Chapter 9 Money, the Price Level, and Inflation 9.1 What is Money? 1) The functions of money are A) medium of exchange and the ability to buy goods and services.
What three main functions do they have? Reducing transaction costs, reducing financial risk, providing liquidity
Unit 4 Test Review KEY Savings, Investment and the Financial System 1. What is a financial intermediary? Explain how each of the following fulfills that role: Financial Intermediary: Transforms funds into
chapter: Solution Money, Banking, and the Federal Reserve System
Money, Banking, and the Federal Reserve System 1. For each of the following transactions, what is the initial effect (increase or decrease) on M1? On M2? a. You sell a few shares of stock and put the proceeds
Lecture Notes on MONEY, BANKING, AND FINANCIAL MARKETS. Peter N. Ireland Department of Economics Boston College. irelandp@bc.edu
Lecture Notes on MONEY, BANKING, AND FINANCIAL MARKETS Peter N. Ireland Department of Economics Boston College irelandp@bc.edu http://www2.bc.edu/~irelandp/ec261.html Chapter 9: Banking and the Management
Homework (Chapter 11)
EC 2113 Principles of Macroeconomics Instructor: Erdenechimeg Eldev-Ochir Name:_ ID: Homework (Chapter 11) Multiple Choice Identify the letter of the choice that best completes the statement or answers
http://angel.bfwpub.com/section/content/default.asp?wci=pgt...
Hmwk 14 1. Let's find out what counts as money. In this chapter, we used a typical definition of money: A widely accepted means of payment. Under this definition, which people are using money in the following
Chapter 13 Money and Banking
Chapter 13 Money and Banking Multiple Choice Questions Choose the one alternative that best completes the statement or answers the question. 1. The most important function of money is (a) as a store of
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Of the four players in the money supply process, most observers agree that the most important player
4. The minimum amount of owners' equity in a bank mandated by regulators is called a requirement. A) reserve B) margin C) liquidity D) capital
Chapter 4 - Sample Questions 1. Quantitative easing is most closely akin to: A) discount lending. B) open-market operations. C) fractional-reserve banking. D) capital requirements. 2. Money market mutual
changes in spending changes in income/output AE = Aggregate Expenditures = C + I + G + Xn = AD
small larger changes in spending changes in income/output AE = Aggregate Expenditures = C + I + G + Xn = AD The Multiplier Effect A small change in spending gives rise to a larger change in income/output
PRACTICE- Unit 6 AP Economics
PRACTICE- Unit 6 AP Economics Multiple Choice Identify the choice that best completes the statement or answers the question. 1. The term liquid asset means: A. that the asset is used in a barter exchange.
Practice Problems Mods 25, 28, 29
Practice Problems Mods 25, 28, 29 Multiple Choice Identify the choice that best completes the statement or answers the question. Scenario 25-1 First National Bank First National Bank has $80 million in
Chapter 11 Money and Monetary Policy Macroeconomics In Context (Goodwin, et al.)
Chapter 11 Money and Monetary Policy Macroeconomics In Context (Goodwin, et al.) Chapter Overview In this chapter, you will be introduced to a standard treatment of the banking system and monetary policy.
Homework 5: The Monetary System and Inflation
Homework 5: The Monetary System and Inflation Solutions 1. Be sure to read your copy of the Wall Street Journal every weekday, looking especially for items related to the material in this course. Find
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) A bank's balance sheet A) shows that total assets equals total liabilities plus equity capital.
Lecture Notes on MONEY, BANKING, AND FINANCIAL MARKETS. Peter N. Ireland Department of Economics Boston College. irelandp@bc.edu
Lecture Notes on MONEY, BANKING, AND FINANCIAL MARKETS Peter N. Ireland Department of Economics Boston College irelandp@bc.edu http://www2.bc.edu/~irelandp/ec261.html Chapter 15c: The Fed s Control of
QUIZ IV Version 1. March 24, 2004. 4:35 p.m. 5:40 p.m. BA 2-210
NAME: Student ID: College of Business Administration Department of Economics Principles of Macroeconomics O. Mikhail ECO 2013-0008 Spring 2004 QUIZ IV Version 1 This closed book QUIZ is worth 100 points.
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
Survey of Macroeconomics, MBA 641 Fall 2006, Quiz 4 Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) The central bank for the United States
4 Macroeconomics LESSON 6
4 Macroeconomics LESSON 6 Interest Rates and Monetary Policy in the Short Run and the Long Run Introduction and Description This lesson explores the relationship between the nominal interest rate and the
Chapter 5. Money and the Federal Reserve. These slides supplement the textbook, but should not replace reading the textbook
Chapter 5 Money and the Federal Reserve These slides supplement the textbook, but should not replace reading the textbook 1 What is barter? The practice of trading one good or service for another 2 What
Practice Problems on Money and Monetary Policy
Practice Problems on Money and Monetary Policy 1- Define money. How does the economist s use of this term differ from its everyday meaning? Money is the economist s term for assets that can be used in
Change Effect on nominal money demand Effect on real money demand Decrease in aggregate price level Shift nominal money demand to left Has no effect
AP Macroeconomics Unit 4 Review Session Money Market 1. Draw the money market, indicating the equilibrium interest rate and quantity. 2. Use the following table to answer this question. Change Effect on
2.If actual investment is greater than planned investment, inventories increase more than planned. TRUE.
Macro final exam study guide True/False questions - Solutions Case, Fair, Oster Chapter 8 Aggregate Expenditure and Equilibrium Output 1.Firms react to unplanned inventory investment by reducing output.
The Federal Reserve System. The Structure of the Fed. The Fed s Goals and Targets. Economics 202 Principles Of Macroeconomics
Economics 202 Principles Of Macroeconomics Professor Yamin Ahmad The Federal Reserve System The Federal Reserve System, or the Fed, is the central bank of the United States. Supplemental Notes to Monetary
THE MEANING OF MONEY. The Functions of Money. Money has three functions in the economy: The Functions of Money. The Functions of Money
In this chapter, look for the answers to these questions: What assets are considered money? What are the functions of money? The types of money? 11 What is the Federal Reserve? What role do banks play
THE BANK'S BALANCE SHEET. Lecture 3 Monetary policy
THE BANK'S BALANCE SHEET Lecture 3 Monetary policy THE BANK'S BALANCE SHEET Like any balance sheet, bank balance sheet lines up the assets on one side and the liabilities on the other side. Two sides equal
Learning Objectives. Chapter 14. Monetary Policy of the Fed. Loose Monetary Policy. The Monetary Policy Approach to Stabilization
Chapter 14 The Monetary Policy Approach to Stabilization Learning Objectives Explain how the Fed can create loose or tight monetary policies. List and explain the three traditional tools of monetary policy.
Money: Definition. Money: Functions. Money: Types 2/13/2014. ECON 3010 Intermediate Macroeconomics
Money: Definition ECON 3010 Intermediate Macroeconomics Chapter 4 The Monetary System: What It Is and How It Works Money is the stock of assets that can be readily used to make transactions. Money: Functions
chapter: Solution Money, Banking, and the Federal Reserve System
Money, Banking, and the Federal Reserve System 1. For each of the following transactions, what is the initial effect (increase or decrease) on M1? or M2? a. You sell a few shares of stock and put the proceeds
Chapter 11 The Central Bank Balance Sheet and the Money Supply Process
Chapter 11 The Central Bank Balance Sheet Problems and Solutions 1. In an effort to diversify, the Central Bank of China has decided to exchange some of its dollar reserves for euros. Follow the impact
Accounting Ratios in Liquidity Management. Desirable maximum level from the liquidity management angle
Liquidity Risk Accounting Ratios in Liquidity Management Loans and Advances to Total Assets. Desirable maximum level from the liquidity management angle 60% to 65%. Implications If greater than desirable,
Solution. Solution. Money, Banking, and the Federal Reserve System. macroeconomics. economics
KrugmanMacro_SM_Ch13.qxp 10/27/05 3:20 PM Page 155 Money, Banking, and the Federal Reserve System 1. For each of the following transactions, what is the effect (increase or decrease) on M1? on M2? a. You
Practice Problems: Chapter 14 Money, Banking, and the Federal Reserve System
Practice Problems: Chapter 14 Money, Banking, and the Federal Reserve System 1. Money is: A) any asset the government says is money. B) any asset that can easily be used to purchase goods and services.
What s on a bank s balance sheet?
The Capital Markets Initiative January 2014 TO: Interested Parties FROM: David Hollingsworth and Lauren Oppenheimer RE: Capital Requirements and Bank Balance Sheets: Reviewing the Basics What s on a bank
Lecture Notes on MONEY, BANKING, AND FINANCIAL MARKETS. Peter N. Ireland Department of Economics Boston College. irelandp@bc.edu
Lecture Notes on MONEY, BANKING, AND FINANCIAL MARKETS Peter N. Ireland Department of Economics Boston College irelandp@bc.edu http://www2.bc.edu/~irelandp/ec261.html Chapter 15a: Introduction to the Money
Economics 152 Solution to Sample Midterm 2
Economics 152 Solution to Sample Midterm 2 N. Das PART 1 (84 POINTS): Answer the following 28 multiple choice questions on the scan sheet. Each question is worth 3 points. 1. If Congress passes legislation
Lecture 10: Money and the Federal Reserve System
Lecture 10: Money and the Federal Reserve System March 1, 2016 Prof. Wyatt Brooks THE BASIC TOOLS OF FINANCE 0 Question: What Backs US Money? Answer: Nothing. This is true of essentially every currency
Macroeconomics, 10e, Global Edition (Parkin) Chapter 25 Money, the Price Level, and Inflation. 1 What is Money?
Macroeconomics, 10e, Global Edition (Parkin) Chapter 25 Money, the Price Level, and Inflation 1 What is Money? 1) The functions of money are A) medium of exchange and the ability to buy goods and services.
Bookkeeping Tips & T Accounts Prepared by Accomp Services (www.accompservices.ca)
Bookkeeping Tips & T Accounts Prepared by Accomp Services (www.accompservices.ca) Further valuable accounting and bookkeeping website resources are listed at the end of this document. A business is one
Accounting II Count Harder. Where do the Numbers Come From?? Professor Ray Wilson & edited by Professor Nelia Newell for Summer 2013 SM299
Accounting II Count Harder Where do the Numbers Come From?? Professor Ray Wilson & edited by Professor Nelia Newell for Summer 2013 SM299 Financial Statements Track All Activities of the Business Operating:
BACKGROUND KNOWLEDGE for Teachers and Students
Pathway: Business, Marketing, and Computer Education Lesson: BMM C6 4: Financial Statements and Reports Common Core State Standards for Mathematics: N.Q.2 Domain: Quantities Cluster: Reason quantitatively
Lecture Notes on MONEY, BANKING, AND FINANCIAL MARKETS. Peter N. Ireland Department of Economics Boston College. irelandp@bc.edu
Lecture Notes on MONEY, BANKING, AND FINANCIAL MARKETS Peter N. Ireland Department of Economics Boston College irelandp@bc.edu http://www2.bc.edu/~irelandp/ec261.html Chapter 17a: The Tools of Monetary
Professional Development. AP Macroeconomics. Monetary Policy. Curriculum Module
Professional Development AP Macroeconomics Monetary Policy Curriculum Module The College Board The College Board is a not-for-profit membership association whose mission is to connect students to college
The Bank Balance Sheet
Chapter 9 THE BANKING FIRM AND THE MANAGEMENT OF FINANCIAL INSTITUTIONS The Bank Balance Sheet T-account Analysis: Bank Operation Deposit of $100 cash into First National Bank Vault Cash + $100 Checkable
2.5 Monetary policy: Interest rates
2.5 Monetary policy: Interest rates Learning Outcomes Describe the role of central banks as regulators of commercial banks and bankers to governments. Explain that central banks are usually made responsible
MACROECONOMICS. The Monetary System: What It Is and How It Works. N. Gregory Mankiw. PowerPoint Slides by Ron Cronovich
4 : What It Is and How It Works MACROECONOMICS N. Gregory Mankiw Modified for EC 204 by Bob Murphy PowerPoint Slides by Ron Cronovich 2013 Worth Publishers, all rights reserved IN THIS CHAPTER, YOU WILL
1 CONSOLIDATED FINANCIAL STATEMENTS (1) Consolidated Balance Sheets
1 CONSOLIDATED FINANCIAL STATEMENTS (1) Consolidated Balance Sheets As of March 31,2014 As of March 31,2015 Assets Cash and due from banks 478,425 339,266 Call loans and bills bought 23,088 58,740 Monetary
With lectures 1-8 behind us, we now have the tools to support the discussion and implementation of economic policy.
The Digital Economist Lecture 9 -- Economic Policy With lectures 1-8 behind us, we now have the tools to support the discussion and implementation of economic policy. There is still great debate about
Short Term Finance and Planning. Sources and Uses of Cash
Short Term Finance and Planning (Text reference: Chapter 27) Topics sources and uses of cash operating cycle and cash cycle short term financial policy cash budgeting short term financial planning AFM
Chapter 6. Time Value of Money Concepts. Simple Interest 6-1. Interest amount = P i n. Assume you invest $1,000 at 6% simple interest for 3 years.
6-1 Chapter 6 Time Value of Money Concepts 6-2 Time Value of Money Interest is the rent paid for the use of money over time. That s right! A dollar today is more valuable than a dollar to be received in
Money, Banking, and the Federal Reserve System
385-412_Krugman2e_Macro_SG_CH14.qxp 4/17/09 2:50 PM Page 385 chapter 14(30) Money, Banking, and the Federal Reserve System BEFORE YOU READ THE CHAPTER Summary This chapter explores the topic of money.
Midterm 2 Answers. PART I: Multiple Choice [39 minutes total, 3 points each]. Do NOT explain.
Economics 330 Menzie D. Chinn Fall 2006 Social Sciences 7418 University of Wisconsin-Madison Midterm 2 Answers This exam is 70 minutes long, and is worth 70 points. Part I is multiple choice, Part II is
ACTIVITY 8.1 A MARGINAL PLAY
LESSON 8 BUYING ON MARGIN AND SELLING SHORT ACTIVITY 8.1 A MARGINAL PLAY Stockbroker Luke, Katie, and Jeremy are sitting around a desk near a sign labeled Brokerage Office. The Moderator is standing in
GUIDE TO THE SURVEY FINANCIAL BALANCE STATISTICS
1(16) GUIDE TO THE SURVEY FINANCIAL BALANCE STATISTICS 1 GENERAL INFORMATION... 3 2 DEFINITION OF DATA... 3 2.1 Positions... 3 2.2... 3 2.3... 4 3 DEFINITION OF VARIABLES... 4 3.1 Financial assets... 4
Money Supply. Key point: if banks hold 100% reserves (i.e., make no loans), they do not change the money supply. 1. Who affects the money supply?
Money Supply 1. Who affects the money supply? 2. 100% reserve banking 3. Fractional reserve banking 4. Money Supply determination and the money multiplier 5. What causes money supply to change? 6. Instruments
Learning Curve Forward Rate Agreements Anuk Teasdale
Learning Curve Forward Rate Agreements Anuk Teasdale YieldCurve.com 2004 Page 1 In this article we review the forward rate agreement. Money market derivatives are priced on the basis of the forward rate,
Workshop 7 Monetary and Fiscal Policy
Workshop 7 Monetary and Fiscal Policy Description The government uses monetary and fiscal policy to manage the economy. Monetary policy and fiscal policy are tools to increase or decrease aggregate demand
Ratios and interpretation
Unit Ratios and interpretation As we learnt in our earlier studies, accounting information is used to answer two key questions about a business: Is it making a profit? Are its assets sufficient to meet
THE STOCK MARKET GAME GLOSSARY
THE STOCK MARKET GAME GLOSSARY Accounting: A method of recording a company s financial activity and arranging the information in reports that make the information understandable. Accounts payable: The
Short-Term Investments & Receivables. Pr. Zoubida SAMLAL
Short-Term Investments & Receivables Pr. Zoubida SAMLAL Learning Objective 1 Account for short-term investments Account for short-term investments Accounting for Short-Term Investments Also called marketable
University of Lethbridge Department of Economics ECON 1012 Introduction to Macroeconomics Instructor: Michael G. Lanyi
University of Lethbridge Department of Economics ECON 1012 Introduction to Macroeconomics Instructor: Michael G. Lanyi CH 24 Money Price Inflation 1) Money is A) currency plus coins. B) the same as gold.
BEAR: A person who believes that the price of a particular security or the market as a whole will go lower.
Trading Terms ARBITRAGE: The simultaneous purchase and sale of identical or equivalent financial instruments in order to benefit from a discrepancy in their price relationship. More generally, it refers
Balance of Payments Accounting. (guidelines recommended by the IMF International Monetary Fund )
Balance of Payments Accounting (guidelines recommended by the IMF International Monetary Fund ) To understand the factors that affect international trade and lending first requires basic knowledge of Balance
Chapter 13: Money, Banks, and the Federal Reserve System
Chapter 13: Money, Banks, and the Federal Reserve System Yulei Luo SEF of HKU March 26, 2012 Learning Objectives 1. Define money and discuss its four functions. 2. Discuss the definitions of the money
ACTIVITY 14.1 STOMPING GROUNDS: BUYERS
LESSON 14 HOW ARE STOCK PRICES DETERMINED? ACTIVITY 14.1 STOMPING GROUNDS: BUYERS Coffee is your favorite drink. For you and everyone in your family, a good day begins with a nice fresh cup. Stomping Grounds,
S m. D m0. D m1 Q m Amount of money demanded and supplied
Rate of interest, i (p ercent) Chapter - Interest Rates and Monetary Policy Chapter Interest Rates and Monetary Policy QUESTIONS 1. What is the basic determinant of (a) the transactions demand and (b)
Fixed Exchange Rates and Exchange Market Intervention. Chapter 18
Fixed Exchange Rates and Exchange Market Intervention Chapter 18 1. Central bank intervention in the foreign exchange market 2. Stabilization under xed exchange rates 3. Exchange rate crises 4. Sterilized
Econ 102 Section 1 Homework #5 Due July 7, Tuesday in class
Econ 102 Section 1 Homework #5 Due July 7, Tuesday in class Multiple Choice Questions (1-10: 10x1=10 points; 11-55: 45 x 2=90 points) 1.The principal amount of a bond is the amount: A) originally lent.
(a) Using an MPC of.5, the impact of $100 spent the government will be as follows: 1 100 100 2 50 150 3 25 175 4 12.5 187.5 5 6.25 193.
S5 Solutions 24 points Chapter 2: Fiscal policy. If the marginal propensity to save is.5, how large is the multiplier? If the marginal propensity to save doubles to., what happens to the multiplier? With
ECO209 MACROECONOMIC THEORY. Chapter 18
Prof. Gustavo Indart Department of Economics University of Toronto ECO209 MACROECONOMIC THEORY Chapter 18 THE MONEY SUPPLY AND MONETARY POLICY Discussion Questions: 1. Open market operations are the main
CHAPTER 26. Working Capital Management. Chapter Synopsis
CHAPTER 26 Working Capital Management Chapter Synopsis 26.1 Overview of Working Capital Any reduction in working capital requirements generates a positive free cash flow that the firm can distribute immediately
Financial Statements and Ratios: Notes
Financial Statements and Ratios: Notes 1. Uses of the income statement for evaluation Investors use the income statement to help judge their return on investment and creditors (lenders) use it to help
i T-bill (dy) = $10,000 - $9,765 360 = 6.768% $10,000 125
Answers to Chapter 5 Questions 1. First, money market instruments are generally sold in large denominations (often in units of $1 million to $10 million). Most money market participants want or need to
Macroeconomics, Fall 2007 Exam 3, TTh classes, various versions
Name: _ Days/Times Class Meets: Today s Date: Macroeconomics, Fall 2007 Exam 3, TTh classes, various versions Read these Instructions carefully! You must follow them exactly! I) On your Scantron card you
Chapter Review and Self-Test Problems
664 PART SEVEN Short-Term Financial Planning and Management Chapter Review and Self-Test Problems 19.1 The Operating and Cash Cycles Consider the following financial statement information for the Route
CASH FLOW STATEMENT (AND FINANCIAL STATEMENT)
CASH FLOW STATEMENT (AND FINANCIAL STATEMENT) - At the most fundamental level, firms do two different things: (i) They generate cash (ii) They spend it. Cash is generated by selling a product, an asset
Short-term investments (also known as marketable securities) are easily convertible to cash that a company plans to hold for a year or less.
Accounting Fundamentals Lesson 5 5.0 Receivables & Investments Short-term investments (also known as marketable securities) are easily convertible to cash that a company plans to hold for a year or less.
Lecture 4: Properties of stock options
Lecture 4: Properties of stock options Reading: J.C.Hull, Chapter 9 An European call option is an agreement between two parties giving the holder the right to buy a certain asset (e.g. one stock unit)
Preparing Financial Statements
Preparing Financial Statements Understanding financial statements is essential to the success of a small business. They can be used as a roadmap to steer you in the right direction and help you avoid costly
Lecture 15: Final Topics on CAPM
Lecture 15: Final Topics on CAPM Final topics on estimating and using beta: the market risk premium putting it all together Final topics on CAPM: Examples of firm and market risk Shorting Stocks and other
Overview of Financial Solutions
Overview of Financial Solutions The Etra Advisory Group provides solutions to businesses for growth, expansion, cash flow, refinance and acquisition. We cover the world of business financing that banks
Accounting Is a Language. Financial Accounting: The Balance Sheet BALANCE SHEET. Accounting Information. Assets. Balance Sheet: Layout
Accounting Is a Language Financial Accounting: The Balance Sheet Richard S. Barr Purpose: providing information Financial Statements Summarize accounting information Examples We need to know what the numbers
Accounts payable Money which you owe to an individual or business for goods or services that have been received but not yet paid for.
A Account A record of a business transaction. A contract arrangement, written or unwritten, to purchase and take delivery with payment to be made later as arranged. Accounts payable Money which you owe
Chris Leung, Ph.D., CFA, FRM
FNE 215 Financial Planning Chris Leung, Ph.D., CFA, FRM Email: chleung@chuhai.edu.hk Chapter 2 Planning with Personal Financial Statements Chapter Objectives Explain how to create your personal cash flow
Problem Set #7 Due in hard copy at beginning of lecture on Monday, May 13, 2013
Name: Solutions Department of Economics Professor Dowell California State University, Sacramento Spring 2013 Problem Set #7 Due in hard copy at beginning of lecture on Monday, May 13, 2013 Important: Place
LESSON SUMMARY. Mathematics for Buying, Selling, Borrowing and Investing
LESSON SUMMARY CXC CSEC MATHEMATICS UNIT Four: Consumer Arithmetic Lesson 5 Mathematics for Buying, Selling, Borrowing and Investing Textbook: Mathematics, A Complete Course by Raymond Toolsie, Volume
Save and Invest Bonds
Lesson 6 Save and Invest Bonds Lesson Description In this lesson, students will learn that bonds are financial assets used to build wealth. Using the more familiar concept of bank loans, bonds are introduced
Understanding Portfolios. Reading the Portfolio
Understanding Portfolios Reading the Portfolio The Portfolio Menu Navigation Menu provides access to various areas in a team s portfolio. It is available on all the pages of a team s online portfolio.
Fractional Reserve Banking
Fractional Reserve Banking Maria Giduskova Andrew McElroy James Petsoulakis Institutional Finance December 1, 2008 OUTLINE How is money created in a fractional reserve system? What tools do central banks
Authored for ENMU Tutoring Services. By Jessica Huff
By Jessica Huff The standard accounting equation is Assets=Liabilities + Stockholders Equity. Depending on which item someone is looking at will determine what the normal balance is. The normal balance