BUSN 5260 Current Economic Analysis Week 7: Personal Assignment-You have just inherited $100,000 from your rich

| August 14, 2017

BUSN 5260Current Economic AnalysisWeek 7: Personal AssignmentThere is Internet question with this assignment at the end.ProblemsProblem 1You have just inherited $100,000 from your rich uncle Sam. Being the conservative sort, you rush to your local bank and deposit the entire windfall. The reserve requirement is currently 10 percent. What is the immediate impact on the balance sheet of the bank? Mention each account affected and the appropriate amount. Also, assuming your bank lends out money to the extent allowed by law, how much will the money supply grow beyond the initial $100,000 deposit?Problem 2Explain thoroughly why credit cards are not technically money.Problem 3Come up with an alternative money to currency. Remember, currency is cash. Do not use any of the other forms of money, such as checks, debit cards, etc. (Also, please do not use precious metals or jewels). Justify your selection using the three characteristics of money.Problem 4Under what circumstances might the Fed want to shrink (contract) the money supply? Be sure to relate your answer to the resulting effect on the Aggregate Demand/Aggregate Supply model.Problem 5Assuming the Fed chooses to shrink the money supply, explain how each of the three tools would be used.Problem 6Explain as thoroughly as you are able, the mechanism that causes a shrinking money supply to result in a change in interest rates.Internet QuestionsQuestion 1Visit: http://research.stlouisfed.org/fred2/categories/25Go to the St. Louis Fed website and complete the following assignment. Scroll down and select M1 Money Stock. I want you to report the Monthly “Not Seasonally Adjusted” data for the most recent month and for January, 1965 (click on View Data on the left side of the page) for each of the following: M1 Money Stock, the Currency Component of M1, Demand Deposits at Commercial Banks, Other Checkable Deposits, and Traveler’s Checks Outstanding.Calculate and show the percentage change between January 1965 and the most recent month for M1 Money Stock each of the components. How has the relative composition of M1 changed since 1965? Do your best to explain why this change has occurred.

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