Any Team
If not given, what is the assumed Reserve Requirement Rate %?
10%
The current worth of some future amount of money is defined as what?
As Bond Prices Increase, then what happens to Interest Rates?
Decrease
When business put money towards tools, machinery, or new factories, this kind of spending is considered to be what specific term?
Investment
Real Interest Rates is interest rates that are factored with what concept?
Inflation
Stocks, Bonds, money tied up in investments is an exmaple of this category of liquidity
M2
The concept of where banks hold a portion of deposits to cover potential withdraws and loan the rest of the money out
Fractional Reserve Banking
A way to use items, animals, etc to exchange goods/services if/when no form of money is present
Barter System
T or F: Savings accounts are part of the Reserve Requirement Metrics
False
Checkable Deposits are an example of this kind of liquidity?
M1
Who does inflation hurt more, borrows or lenders?
lenders
According to the loanable funds market model, as real interest rates decrease, what happens to the quantity demanded for loanable funds?
Increases
if the discount rate is increased, then what happens to the money supply?
Decreases, more expensive for commercial banks to borrow money from the FED
When it comes to the Reserve Market Model, what situation between the FFR and Discount Rate deems to be "ample reserves"?
When the FFR is lower than the Discount rate, this will make commercial banks keeps reserves amounts within themselves and make loan between each other rather than with the FED
When the supply and demand for loanable funds decrease, what happens to real interest rates?
Nothing, stays the same after the two shifts
When the Fed increases the money supply, what happens to the following:
Interest Rates -
Investment -
GDP -
AD -
Interest Rates - Decrease
Investment - Increases
GDP - Increases
AD - Increases
When commercial banks take short term, one days loans from one another, the interest rate they charge each other is called
The Federal Funds Rate
If there there in increase in foreign financial capital investment, what happens to loanable funds supply curve and real interest rates
Shifts to the right/increases and real interest rates decrease
If you deposit $1000 in a checking account, with the reserve requirement being 10%, what is the money multiplier in regards to total excess reserves / loanable funds?
$1000 = $900 excess reserves / $100 reserves
Money Multiplier = 1 / Reserve Requirement %
1 / .10 = 10 is the money multiplier
$900 excess reserves/loanable funds x 10 = $9000
Answer: $9000 increase in money supply
On a bank balance sheet Loans / reserves / treasury bonds are _______ for a bank and Demand Deposits / Owner's equity / Debt are _________ for a bank.
Based on these, what do they have to equal on a balance sheet?
Assets
Liabilities
Zero
Concept of money where money holds no value on it's own
Fiat
Why would you want to have your money in a bank versus under your mattress?
To earn interest
Calculate the real interest rate, assuming that the current interest rate is 5% and the expected inflation rate is 2%.
What should be the minimum amount a should charge in order to cover for inflation/profit margins?
Real Interest Rate = Nominal - Expected
5% nominal - 2% expected inflation = 3% real interest rate
3% real interest rate + 5% nominal = 8% actual/minimum interest rate lender should charge
During a recession, what does the central bank do with the reserve requirement and does specifically listed below in regards to increase, decrease, or no change:
- Increase or Decrease Reserve Requirement
- Increase or Decrease in excess reserves
- Increase or Decrease in Loanable Funds
- Increase or Decrease in Money Supply
Increase in Excess Reserves
Increase in Loanable Funds
Increase in Money Supply
When there are limited reserves, what happens if the FED buys bonds from commercial banks?
Increases the supply of reserves. Causing the Federal Funds rate to decrease / lowering interest rates