Wednesday
October 22, 2014

Homework Help: intro to economics

Posted by anna on Monday, March 2, 2009 at 2:07pm.

Please check my answers and I need help on some of the problems. I'm in a intro to economics course at a university. My professor did not provide a book for this course citing that she rarely had her students use it. So all I have are notes. I would like some help on the problems requiring math. i will be back later in a couple hours to see if someone has helped me and if someone could check my answers. Thank you very much

1.Inflation is defined as?
The sustained increase in the general level of prices for goods and services

2. What is not a definition of money?
It is always the currency a nation uses

3. ____ are the amount of new deposits that banks must keep in their reserves.
Required reserves.

4. what counts as legal reserves? money on account at the Federal Reserve Bank and cash in the banks vaults.

5. "Good deflation” is only considered good because? Companies are becoming more efficient and can off commodities at lower prices.

True or false:
6.Inflation is bad for everyone.
False

7.CPI only takes into account urban consumers. True

8.The gold standard would take away monetary regulatory power from the Federal Reserve Bank.
True

9.Deflation is good for everyone. False

10.Required reserves are determined by the market demand for loans.
True

This question involves the Quantity Theory of Money.

If the amount of money in circulation increases by 200%, the velocity of money increases by 50%, and there is no change in the number of transactions, how have prices changed?
When I did the math I got 450. would that mean that the price increased 350%? I have a feeling I did that one wrong.

This question involves value of money:
a. Assume that prices have increased 33% from the base year of 2005 to 2009. How much is a dollar worth compared to 2005?
I know the equation to use is value of money = 100/ new price index. I'm just confused on how to calculate the new price index.

b. How much has the value of the dollar changed by since 2005?
ii.

This question involves the creation of new money.
Suppose TrustUs Bank has a policy of always keeping $30,000 from daily new deposits in reserves in addition to their required reserves. Now assume that throughout the day TrustUs Bank received new deposits totaling $150,000 and the Fed has set the reserve ratio at 15%. (6 points)
ii.a. What will be the increase in required reserves, excess reserves, and legal reserves for TrustUs Bank on this particular day? For this I was going to use the new money equation: new money = (new deposits/ reserve ratio)- new deposits. I'm lost on this and would very much like hints.

b. Now suppose TrustUs bank again receives $150,000 in new deposits. However, this day they abandon their policy of keeping the extra $30,000 from new deposits in reserves (i.e. they loan out everything other than their required reserves). What is the maximum amount of new loans that will be created in the entire banking system from TrustUs Bank’s new deposits for the day?

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