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ECON102 Lecture Notes - Lecture 18: Reserve Requirement, Opportunity Cost, Open Market Operation

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cerisegiraffe538
17 Apr 2018
School
University of Alberta
Department
Economics
Course
ECON102
Professor
Andrew Wong

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ECON102 Full Course Notes
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ECON102 Full Course Notes
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Document Summary

How bank of canada affects the overnight interest rate. Money and inflation: we will cover equation of exchange, and the quantity theory of money. M (money supply) multiplied by v (velocity of circulation) = p (price) times q (quantity - rgdp) Velocity of circulation: how many times a dollar is used in transactions on average during a year. Price and q multiplied together is the nominal gdp: suppose, we produce 200 apples, and the price of apples is , the production of these apples is 200 times by 5 to get a . Inflation rate = growth rate in money supply (m) growth rate in real gdp (q) Inflation happens when there is too much money to buy few goods and services. The main cause of inflation is that money supply grows faster than real gdp. This chapter covers money demand, money supply, transmission mechanism of. Monetary policy, and factors affecting the effectiveness of monetary policy, and phillip"s.

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Related Questions

There are many economic models to explain the macro-economies function. Adam Smith started the classic economic thinking with his laissez-faire theory. The classical foundation for the role of money supply in an economy started in the mid-1700s. In classic macroeconomics, money is used for transactions. If there is more money or less money in circulation then it means that the prices are higher or lower. The classic model dominated microeconomics and macroeconomics of 1800 and 1900. In the classic macroeconomic model, the role of money is that it is used for transactions. The classic role of money can be understood through the quantity theory of money. The quantity theory of money states that if there are changes in the price level, then there will be corresponding changes in the money supply. The equation for the quantity theory of money is: M * V = P * Q
 
In this equation,
M = Nominal money supply
V = Velocity of money
P = Average price level
Q = Quantity of goods and services sold
 
The average price times quantity of goods and services sold represents the nominal GDP. The velocity of money is the number of times a currency is spent during a year.
Say's Law states that supply creates its own demand. It means that the income that is derived from producing some goods by an individual, allows him to purchase goods produced by some other individual. Since everyone has a need to purchase goods, they will produce some goods to earn income and buy what they want. So, the product markets will always be in equilibrium.
 
Show an empirical study that tests the relative inflation and growth rates on the nominal exchange rates.

1. Which of the following is NOT a tool the Fed uses to manage the money supply?

A) open market operations

B) discount policy

C) deposit insurance

D) reserve requirements 0.4 points

 

2. The problem with barter economies is:

A) less time and trouble to trade as compared with a money economy.

B) that there may be a double coincidence of wants.

C) a banking system for trade to occur.

D) that there be a single coincidence of wants. 

 

3. If banks do not loan out all their excess reserves, then the real world multiplier is

A) smaller than 1/RR.

B) larger than 1/RR.

C) equal to 1/RR.

D) not related to 1/RR. 

 

4. If the Federal Open Market Committee wants to increase the money supply through open market operations, it will

A) buy U.S. Treasury Securities.

B) sell U.S. Treasury Securities.

C) increase the discount rate.

D) decrease the discount rate. 

 

5. M1 includes

A) currency in circulation, checking account balances at banks, the value of traveler's checks.

B) currency in circulation, savings accounts, checking account balances at banks.

C) currency in circulation, savings accounts, checking account balances at banks, travelers.

D) coins, savings account balances at banks, traveler's checks. 

 

6. Using the quantity equation, if the velocity of money grows at 5 percent, the money supply grows at 10 percent, and real GDP grows at 4 percent, then the inflation rate will be

A) 19 percent.

B) 15 percent.

C) 11 percent.

D) 6 percent.

 

7. According to the quantity theory of money, the inflation rate equals

A) the money supply minus real output.

B) real output minus the money supply.

C) the growth rate of the money supply minus the growth rate of real output.

D) the growth rate of real output minus the growth rate of the money supply.

 

8. Suppose that you sold a basketball ticket for the SEC tournament for $750. Assuming that you deposit the entire $750 in your bank and that the RR = 10%, Answer the following questions while also using the same assumptions in the book/lecture slide. Correct answers contain no decimals. Please report them as they are.

a) What is the total change in checking account deposits?

b) How much new money is created? (or what is the change in money supply given the above state conditions?) The total change in the money supply is Blank 2.

c) The amount of new money created in this example would be higher or lower than in the real world. The amount of money created this way would be Bank 3 than in the real world.

Which of the following is NOT a tool the Fed uses to manage the money supply? A) open market operations B) discount policy C) deposit insurance D) reserve requirements 0.4 points Question 2 The problem with barter economies is that they require A) less time and trouble to trade as compared with a money economy. B) that there be a double coincidence of wants. C) a banking system for trade to occur. D) that there be a single coincidence of wants. 0.4 points Question 3 If banks do not loan out all their excess reserves then the real world multiplier is A) smaller than 1/RR. B) larger than 1/RR. C) equal to 1/RR. D) not related to 1/RR. 0.4 points Question 4 If the Federal Open Market Committee wants to increase the money supply through open market operations it will A) buy U.S. Treasury Securities. B) sell U.S. Treasury Securities. C) increase the discount rate. D) decrease the discount rate. 0.4 points Question 5 M1 includes A) currency in circulation, checking account balances at banks, the value of traveler's checks. B) currency in circulation, savings accounts, checking account balances at banks. C) currency in circulation, savings accounts, checking account balances at banks, traveler's D) coins, savings account balances at banks, traveler's checks. 0.4 points Question 6 Using the quantity equation, if the velocity of money grows at 5 percent, the money supply grows at 10 percent, and real GDP grows at 4 percent, then the inflation rate will be A) 19 percent. B) 15 percent. C) 11 percent. D) 6 percent. 0.4 points Question 7 According to the quantity theory of money, the inflation rate equals A) the money supply minus real output. B) real output minus the money supply. C) the growth rate of the money supply minus the growth rate of real output. D) the growth rate of real output minus the growth rate of the money supply 0.4 points Question 8 Suppose that you sold a basketball ticket for the SEC tournament for $750. Assuming that you deposit the entire $750 in your bank and that the RR = 10%, Answer the following questions while also using the same assumptions in book/lecture slide. Correct answers contain no decimals. Please report them as they are. a) What is the total change in checking account deposits? Total change in checking account deposits is Blank 1 . b) How much new money is created? (or what is the change in money supply given the above state conditions?) Total change in money supply is Blank 2 . c) The amount of new money created in this example would be higher or lower than in the real world. The amount of money created this way would be Blank 3 than in the real world.