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Lecture

ECON 1BB3 Lecture Notes - Money Multiplier, Money Supply, Excess Reserves


Department
Economics
Course Code
ECON 1BB3
Professor
Bridget O' Shaughnessy

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Chapter 11 - Homework Answers
Recommended: 1,7,8,10
1. b. No - it is not a unit of account or a medium of exchange (it is a store of value)
d. No - it is a method of deferred payment, not a medium of exchange and it is not
a store of value (it can be considered a unit of account since most Canadian
credit cards use Canadian dollars)
7. a. Assets Liabilities
Reserves: $25 million Deposits: $250 million
Loans: $225 million
b. Assets Liabilities
Reserves: $24 million Deposits: $240 million
Loans: $216 million
c. Other banks will also have to call in loans
d. It is more likely that the banks will slow down the rate at which they make new
loans rather than calling in loans.
8. Total deposits increase by $1000. Total money supply increases by $900 (the
increase in deposits minus the decrease in cash).
10. a. Excess reserves: $75,000.
b. The money supply would increase by $1.5 million ($75,000 * 20, which is the
money multiplier).
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