1- What is the difference between commodity money and fiat money? Is there a scenario you can think of that incentivizes individuals to hold commodity money instead of fiat money? 2- Suppose the Fed buys $1 million in Treasury securities from a commercial bank. What effect will this action have on the bank's reserves and the money supply? 3- A bank operates with reserves of $100, loans of $300 and securities of $100. The bank's only liability is deposits of $400 since it has zero debt. Further, assume that the bank's capital equals the difference between 'Assets' and 'Liabilities.' Calculate its leverage ratio. 4- List three actions the Fed can take to increase money supply. Briefly discuss why these actions affect money supply in the first place.

1- What is the difference between commodity money and fiat money? Is there a scenario you can think of that incentivizes individuals to hold commodity money instead of fiat money? 2- Suppose the Fed buys $1 million in Treasury securities from a commercial bank. What effect will this action have on the bank's reserves and the money supply? 3- A bank operates with reserves of $100, loans of $300 and securities of $100. The bank's only liability is deposits of $400 since it has zero debt. Further, assume that the bank's capital equals the difference between 'Assets' and 'Liabilities.' Calculate its leverage ratio. 4- List three actions the Fed can take to increase money supply. Briefly discuss why these actions affect money supply in the first place.

Brief Principles of Macroeconomics (MindTap Course List)

8th Edition

ISBN:9781337091985

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter11: The Monetary System

Section: Chapter Questions

Problem 9PA

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