Bank and monetary policies

 

MACROECONOMICS – 3 Short Essay Questions

There are three (3) short essay questions that must be answered in APA style.  Each essay must be between 300-400 words, and should contain at least one in-text citation from the text book (Macroeconomics, McEachern). All other sources must be cited as well.  Basically, I’m looking for these three questions to fill 1-1/2 to 2 double-spaced pages.  Each essay should be grammatically correct, contain no punctuation errors, contain no typos, and have proper sentence structure.  Each essay must be completely void of plagiarism.

 

When describing how banks create mony, answer the following question:

1)  Show how each of the following would initially affect a bank’s assets and liabilities.

  • Someone makes a $10,000 deposit into a checking account.
  • A bank makes a loan of $1,000 by establishing a checking account for $1,000
  • The loan described above is spent.
  • A bank must write off a loan because the borrower defaults.

 

When summarizing the Fed’s tools of monetary policy, answer the following question:

2) What tools does the Fed have to pursue monetary policy? Which tool does it use the most?

 

3)  Suppose the money supply is currently $400 billion and the Fed wishes to increase it by $100 billion.

  • Given a required reserve ration of 0.25, what should it do?
  • If it decided to change the money supply by changing the required reserve ratio, what change should it make?  Why may the Fed be reluctant to change the reserve requirement?
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