answer the following questions. Submit as a Microsoft Word® document to the Dropbox when completed. 1. Determine whether each of the following is counted in the M1 measure of the money supply:
i. The coins in your piggy bank.
Yes- These are counted because it is coins that are in circulation and can be spent.
ii. The funds in your checking account at First National Bank.
Yes-This is counted because you can spend the money whenever you want.
iii. The funds in your savings account at Second National Bank.
No-This does not include savings accounts. This would be counted as M2.
iv. The traveler’s check you have left over from your trip to Germany.
Yes-Traveler’s checks are counted in the money supply (R. Glenn Hubbard, 2013, pg 836).
v. The available balance on your Citico Gold MasterCard.
No-This is not counted as it is debt and is not currency. This is buying on credit. 2. Refer to the simplified balance sheet for a bank and answer the following questions. Assets Liabilities Reserves $ 10,000 Deposits $ 70,000 Loans $ 66,000 Stockholder’s equity $ 6,000 a. If the required reserve ratio is 5 percent, how much in excess reserves does this bank hold? Excess reserve = $10,000 – ($70,000 * .10) = $3,000 The bank holds $3,000 in excess reserves. b. What is the maximum amount this bank can expand its loans? The maximum amount this bank can expand its loans is $3,000 c. What will happen to the M1 money supply if it makes the loans in (b) above and those funds are deposited into another bank by the borrowers?
3. Identify each of the following events as:
a) part of an expansionary fiscal policy b) part of a contractionary fiscal policy c) part of an expansionary monetary policy d) part of a contractionary monetary policy
i. The corporate income tax rate is increased.
ii. Defense spending is increased.
iii. Families are allowed to deduct all daycare expenses from their federal income taxes.
iv. The individual income tax rate is decreased.
v. The Federal Reserve Bank buys Treasury securities.
4. Assume the Federal government runs a budget deficit in the current fiscal year. i. How can the Federal government fund the deficit? ii. If the Federal government decides to issue U.S. Treasury securities to fund the deficit, what happens to the level of national debt, all else held constant? iii. Assuming the Federal government and firms compete for the same savers’ dollars in the loanable funds market, what is likely to happen to interest rates? iv. Given your answer in (iii) above, is crowding out more or less likely to occur if the deficit is funded by Treasury securities? Explain.
Directions for Submitting your Assignment Compose your Assignment in a Microsoft Word ® document and save it as Username-MT445 Assignment-Unit#.doc (Example: TAllen- MT445 Assignment-Unit9.doc). Submit your file by selecting the Unit 9: Assignment Dropbox by the end of Unit 9.