1. The functions of money Patrick is heading out ot lunch. He goes to the bank a

Question

1. The functions of money

Patrick is heading out ot lunch. He goes to the bank and withdraws $100 from his savings account. He heads to a local deli that sells 6-inch submarine sandwiches for $5.99 and foot-long subs for $8.99. Patrick decides that he's pretty hungry and goes for the foot-long sub. He pays with a $10 bill and tells the cashier to keep the change.

-Identify what role money plays in each of the following parts of the story.

Part 1: Patrick accumulates money in his savings account for future purchases.

A. Medium of Exchange
B. Unit of Account
C. Store of Valuie

Part 2: Patrick buys his lunch with a $10 bill.

A. Medium of Exchange
B. Unit of Account
C. Store of Valuie

Part 3: Patrick can easly determine that the foot-long sub, while twice as long as the 6-inch sub, is priced as lees than twice as much.

A. Medium of Exchange
B. Unit of Account
C. Store of Valuie

2. Liquidity

Arrange the following four assets in order of their liquidity, from most liquid to least liquid: a share in a publicly traded company, your house, a $20 bill, and the funds in a savings account.

-Most liquid:

A. Share of Stock
B. Funds in a Savings Account
C. $20 bill
D. House

-Second most liquid:

A. Share of Stock
B. Funds in a Savings Account
C. $20 bill
D. House

-Third most liquid:

A. Share of Stock
B. Funds in a Savings Account
C. $20 bill
D. House

-Least liquid:

A. Share of Stock
B. Funds in a Savings Account
C. $20 bill
D. House

3. Identify whether the following correspond to M1 or M2. Write M1 or M2 next to the example. if it corresponds to both, make sure to write both.

-Erin has a jar of coins by her beside table. ______
-Nick has $1200 in a savings account. ______
-Nick has $20000 in a money market account. ______
-Chance has $1200 ina checking account. ______

-The main difference between M1 & M2 is that all money within M1 can be used directly as ______________, whereas sometimes of money within M2 cannot.

A. a unit of account
B. a medium of exchange
C. a store of value

-Because the required ratio is 5%, the $20000 deposit ________.

A. Increase
B. Decrease

-Fisrt Main street bank's required reserves by _________

A. $200,000
B. $50,000
C. $20,000
D. $10,000

-Therefore, ________ Fisrt Main Bank reserves by ________.

A. Increases                   
B. Decreases    

-------------------------------

A. $180,000
B. $150,000
C. $190,000
D. $0               

A. $4,000,000
B. $1,000,000
C. $3,800,000
D. $380,000

6. The actual deposit multiplier.

Fill in the blank spaces with one of the following terms & numbers.

Increase, Decrease, $40,000, $250,000, $400,000, $10,000

Suppose that the federal reserve ("the Fed") buys $50,000 of U.S government bonds and the required reserve ratio is 0.20. If the assumptions of the potential deposit expansion multiplier hold, this will ________ the money supply by __________.

7. The Federal Reserve System

Fill in the blank spaces with one of the following numbers.

12,7,5

There are ______ members of The Federal Reserve Board of Governors.

Fill in the blank spaces with one of the following terms.

the reserve equipment, the discount rate, open market operations, buy, sell

Fill in the blank spaces with one of the following terms& numbers.

actual increase, actual decrease, maximum potential decrease, maximum potential increase, 0.10, 0.05

Fill in the blank spaces with one of the following terms& numbers.

buy, sell, $200 billion, $275 billion, $5.0 billion, $50 billion

11. Dynamic changes in the nature of money and the M1 money supply.

Fill in the blank space with one of the following terms.

rise, decline

                      
                                                                    

4. Fractional reserve banking Consider the following functions that goldsmiths used to perform. Of these, which are currently performed by modern-day financial institutions in the context of fractional reserve banking? Check all that apply. Goldsmiths made loans to people who did not necessarily have gold deposits by issuing additional paper receipts that would be accepted by merchants as a means of payment. Goldsmiths issued paper receipts to the people who stored their gold in their safes. The paper receipts issued by the goldsmiths were accepted by merchants as a means of payment. Goldsmiths wanted to avoid a situation in which they had too many paper receipts outstanding, with too many people trying to withdraw gold all at once. Therefore, they kept a certain amount of gold on hand and limited the number of loans they made.

Explanation / Answer

Part 1: Store of value

Part 2:Medium of exchange

Part3: Unit of account

2) Most liquid: $20 bill

Second most liquid: Share of stock

Third most liquid: Funds in saving account

Least liquid: House

3) -Erin has a jar of coins by her beside table. _M1_____
-Nick has $1200 in a savings account. ___M2___
-Nick has $20000 in a money market account. __M2____
-Chance has $1200 ina checking account. __M1____

The main difference between M1 & M2 is that all money within M1 can be used directly as ____Medium of exchange__, whereas sometimes of money within M2 cannot.

4) Goldsmith issue paper reciepts to those who store gold with them

5) Increase reserves by 0.05(200,000) = $10,000

6) Buying of bonds by Fed will increase the money supply by 50000/0.2 = $250,000

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