Money, Banks, and the Federal Reserve System
1. Your Assignment should have a cover sheet with the following information:
? Your Name
? Course Number
? Section Number
? Date
2. You may submit your Assignment using the Unit 7 Assignment template.
3. Your answers should follow the APA format by being in double spaced paragraph format, with
citations to your sources and, at the bottom of your last page, a list of references. Your answers
should also be in Standard English with correct spelling, punctuation, grammar, and style.
4. Respond to the questions in a thorough manner, providing specific examples of concepts,
topics, definitions, and other elements asked for in the questions. Your paper should be highly
organized, logical, and focused.
5. Required Format:
? Correct APA format for answers (cover sheet with name, course number, section number,
unit number, date, answers double spaced, in Times New Roman 12-point font).
Assignment
Assume you are hired as an assistant quantitative analyst at a bank. Given the scenarios
provided in the Assignment, complete the tables and explain the computation results. View the
Chapter 16: “Does the Federal Reserve Control Both the Money Supply and Interest Rates?”
video and the Chapter 17: “Would You Explain Inflation?” video.
This Assignment will assess your knowledge based on the following outcomes:
AB204-4: Describe the roles of money, banking, and the Federal Reserve System in the macro
economy.
[ BU204 | Macroeconomics ]
Page 2 of 5
1) This section deals with increase money supply given two scenarios (see “a” and “b” below).
In Westlandia, the public holds 50% of money one (M1) in the form of currency, and the
required reserve ratio is 20%.
a) Estimate how much the money supply will increase in response to a new cash deposit of
$500 by completing the accompanying table.
(Hint: The first row shows that the bank must hold $100 in minimum reserves — 20% of the $500
deposit — against this deposit, leaving $400 in excess reserves that can be loaned out. However,
since the public wants to hold 50% of the loan in currency, only $400 × 0.5 = $200 of the loan will
be deposited in round 2 from the loan granted in Round 1.)
Round Deposits
Required
reserves
Excess
reserves Loans
Loan
proceeds
held as
currency
Loan
proceeds
deposited
1 $500.00 $100.00 $400.00 $400.00 $200.00 $200.00
2 $200.00
3
4
5
6
7
8
9
10
Totals
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