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    Money and Monetary Policy

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    Tom Schenk Jr.
    This document is a homework assignment for an economics course that includes 5 questions analyzing the effects of the Federal Open Market Committee lowering interest rates. It asks students to: [1] Chart and explain the effects on bond, money supply, loan, and aggregate markets; [2] Calculate money creation from bank deposits at different reserve ratios; and [3] Determine the value of a loan with $5,000 annual payments at a 5% interest rate.

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    Money and Monetary Policy

    Uploaded by

    Tom Schenk Jr.
    146 views3 pages
    This document is a homework assignment for an economics course that includes 5 questions analyzing the effects of the Federal Open Market Committee lowering interest rates. It asks students to: [1] Chart and explain the effects on bond, money supply, loan, and aggregate markets; [2] Calculate money creation from bank deposits at different reserve ratios; and [3] Determine the value of a loan with $5,000 annual payments at a 5% interest rate.

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    This document is a homework assignment for an economics course that includes 5 questions analyzing the effects of the Federal Open Market Committee lowering interest rates. It asks students to: [1] Chart and explain the effects on bond, money supply, loan, and aggregate markets; [2] Calculate money creation from bank deposits at different reserve ratios; and [3] Determine the value of a loan with $5,000 annual payments at a 5% interest rate.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    146 views3 pages

    Money and Monetary Policy

    Uploaded by

    Tom Schenk Jr.
    This document is a homework assignment for an economics course that includes 5 questions analyzing the effects of the Federal Open Market Committee lowering interest rates. It asks students to: [1] Chart and explain the effects on bond, money supply, loan, and aggregate markets; [2] Calculate money creation from bank deposits at different reserve ratios; and [3] Determine the value of a loan with $5,000 annual payments at a 5% interest rate.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 3

    Homework #5

    Economics 101 – Macroeconomics

    Professor Schenk

    Due: October 15, 2009

    1. On November 6th, 2002, the FOMC released a statement: “The Federal Open
    Market Committee decided today to lower its target for the federal funds rate
    by 50 basis points to 1 1/4 percent.” Using the series of graphs below, follow
    the progress and actions of the FOMC.
    a. What happens in the bond market? Chart the answer and write a brief
    explanation.

    Price Bonds

    S1

    D1
    Quantity

    b. What happens to the supply of money? Chart the answer and write a
    brief explanation.

    Money
    Interest S1

    D1

    Quantity
    c. What happens to the loan market? Chart your answer and write a brief
    explanation.

    Interest Loans

    S1

    D1

    Quantity

    d. How will the loan market affect the overall economy? Write an
    explanation in words.

    e. What happens in the aggregate economy (use the interpretation in


    part d)? Chart your answer.

    Prices
    AS1

    AD1
    GDP
    2. Suppose a customer deposits $1,500 in a bank. Suppose the reserve ratio is
    10 percent. How much will that deposit create in demand for deposits in the
    economy?

    a. Now suppose the reserve ratio is decreased to 8 percent. How much


    will that deposit create in demand for deposits in the economy?

    b. Did lowering the reserve ratio contract or expand the supply of money
    in the economy?

    3. A bank issues a loan where the lender promises to pay the bank $5,000 each
    year and a 5% interest rate. What is the value of that loan?

    You’re done!

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