Unit 8 Assignment Template: Money, Banking, and the Federal Reserve System

Name: ______________
Course Number and Section Number: BU204 Section Number ____
Date: ______________

General Instructions for all Assignments

1. Unless specified differently by your course instructor, save this assignment template to your computer with the following file naming format: Course number_section number_Last name_First name_Unit number.

2. At the top of the template, insert the appropriate information: Your Name, Course Number and Section (BU204 – Section 0x), and the Date.

3. Insert your answers below each question, or in the appropriate space provided for in the question. Respond to questions in a thorough manner, providing specific examples of concepts, topics, definitions, and other elements asked for in the questions.

4. Your answers should follow APA format by being in double-spaced paragraph format, with citations to your sources and, at the bottom of your last page, a list of references. You must provide at least ONE reference. If you have no other references, then use the textbook as your reference. Your answers should also be in Standard English with correct spelling, punctuation, grammar, and style (Times New Roman, 12-point, black font).

5. Upload the completed assignment to the appropriate unit Dropbox.

6. Any questions about the assignment, or format questions, should be directed to your course instructor.

Assignment

This assignment deals with how banks “create” money through making loans and how the change in money supply is calculated, as well as how to calculate the money multiplier. In addition, this assignment examines the tools utilized by the Federal Reserve System to influence the money supply.
1. In the hypothetical country of Westlandia, banks are required to hold 20% of checkable deposits as reserves, and the public holds 50% of the loans as currency in circulation and redeposits the remaining 50% percent of the loans.
a. Complete the table (calculations should be to no more than two decimal places).

Round Deposits Required Reserves of 20% Excess Reserves New Loans 50% of loan proceeds are held as currency in circulation by people Loan proceeds redeposited
1 $500
2
3
4
5
6
7
8
9
10
Totals

b. Calculate the new money supply.
(Enter response here.)
c. Calculate the money multiplier.
(Enter response here.)

2. In the hypothetical country of Middlelandia, banks are required to hold 20% of checkable deposits as reserves, and the public holds none of the loans as currency in circulation and redeposits all of the loans.
a. Complete the table (calculations should be to no more than two decimal places).
Round Deposits Required Reserves of 20% Excess Reserves New Loans None of loan proceeds are held as currency in circulation by people Loan proceeds redeposited
1 $500
2
3
4
5
6
7
8
9
10
Totals

b. Calculate the new money supply.
(Enter response here.)

c. Calculate the money multiplier.
(Enter response here.)

3. In the hypothetical country of Eastlandia, banks are required to hold 10% of checkable deposits as reserves, and the public holds none of the loans as currency in circulation and redeposits all of the loans.
a. Complete the table (calculations should be to no more than two decimal places).
Round Deposits Required Reserves of 10% Excess Reserves New Loans None of loan proceeds are held as currency in circulation by people Loan proceeds redeposited
1 $500
2
3
4
5
6
7
8
9
10
Totals

b. Calculate the new money supply.
(Enter response here.)

c. Calculate the money multiplier.
(Enter response here.)

4. Describe in detail the differences between the three hypothetical countries money supplies, money multipliers, and likely impacts on each economy.
(Enter response here.)

5. Explain how each of the following situations changes the quantity of money (money supply) in the economy, based on its computed change in money supply.
a. The Federal Reserve System buys bonds.
(Enter response here.)
b. The Federal Reserve System auctions credit.
(Enter response here.)
c. The Federal Reserve System raises the discount rate.
(Enter response here.)
d. The Federal Reserve System raises the reserve requirement.
(Enter response here.)
———————-
References:

Directions for Submitting Your Assignment
Before you submit your assignment, you should save your work on your computer in a location and with a name that is specified in item 1. of the General Instructions for all assignments. When you are ready, you may submit to the Unit 8 Assignment Dropbox.