BUEC 232 Study Guide - Final Guide: Nba Coach Of The Year Award

7. The purpose of this exercise is to show what happens to the maximum money-creating ability of the banking system when the Fed lowers the reserve requirement. Assume the Fed’s reserve requirement is 1%. Use the balance sheet in question 6.

(Formula)

The consolidated balance sheet of the U.S. banking system indicates:

Assets Liabilities

Reserves $40,000 Checkable deposits $100,000

1. a. Required reserves = Required reserve ratio ´ checkable deposits

b. Actual reserves = Required reserves + excess reserves

Must write out the mathematical formulas and show your calculations

a. The simple money multiplier equals _______________. Formula

b. The banking system has excess reserves of $_______________.

Formula (write out formula #1a):

Formula (write out formula #1b):

c. Loans and the money supply can be expanded by a maximum of $_______________.

According to the law of increasing opportunity costs,

A.The more one is willing to pay for resources, the smaller will be the possible level of production.

B. Increasing the production of a particular good will cause the price of the good to remain constant.

C. In order to produce additional units of a particular good, it is necessary for society to sacrifice increasingly larger amounts of alternative goods.

D. None of the choices are correct.

a) Explain why economic profit provides a better measure of profit than accounting profit.

b) In measuring economic profit:

1) How do you deal with a one-time event? 

2) How do you deal with money provided by relatives to get the business started? 

3) How do you handle off-balance-sheet expenses - that is, expenses that are incurred by the firm but are not measured as part of the firm's balance sheet?