# intro to economics

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:
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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1. Some of the post didn't show up.

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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posted by anna
2. 9.Deflation is good for everyone. False
10.Required reserves are determined by the market demand for loans.
True

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posted by anna
3. I'm sorry for the amount of post some of my post is not showing up.
This question involves the Quantity Theory of Money.
1. 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:
2. 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.
3. 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%.
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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posted by anna
4. 1) Im good with that
2) HuH, what is NOT a defintition of money? Superman is not a definition of money, but so what.
3-6) I agree
7) CPI should include all consumers. CPI-U, I believe, charts only urban consumers.
8-9) I agree
10) reserve requirements are set by the Fed.

1) Humm, how can velocity increase by 50% and the number of transactions remain constant? An impossible condition.

2) if in the index, 2005=100, then 2009=133. Take it from here.

3) New deposits = 150,000. Required reserves = 15% or 22500. Excess reserves are given at 30,000. So total (legal) reserves are 52500. So, new loans are 97500.

3b) money multiplier = 1/rr = 1/.15 = 6.667. So, new money = 150,888*6.667 = \$1,000,000.

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5. YOU GO TO KU. Econ 104. Tues and Thurs. This is Sarah Frazelle, your professor. Busted.

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posted by sarah
6. I am in your lecture at KU with Sarah Frazelle, and the only way you can't answer all of these is if you skip class all the time, lazy !@#\$%^&.

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posted by Loser
7. jeez no one can ask for help on the internet any more? This is a homework help website. so lay off.

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posted by ray
8. I think the teacher needs to back off, obviously the student is having questions, which means the teacher isnt doing her part to communicate thouroughly enough to the students.

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9. I had econ 104 last semester with Sarah Frazelle and she very THROROUHGLY covers the EXACT concepts she puts on tests in homework in her notes. We really never did used the text b/c it was always easier to use the notes rather than dig through chapter after chapter. She also gave us the chance to go over questions, and schedule appointments with both our discussion leaders and herself. That is a HUGE class too, so this student could easily get together with another student or correspond over blackboard or email. I'm not a perfect student by any means but I will not hesitate to call out a lazy student.

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10. Re: Ray-
ya its a homework help website, this student posted the entire assignment word for word and expects others to give the answers. Very different than actually learning this info herself.
LOL that this student got busted!

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11. Ha! Okay, this really is Sarah Frazelle and I just found this site (i.e. that was not me on March 2nd). Pretty hilarious that someone posed as me to call this out... I'm wondering whether it was a TA or another student.

A couple of comments - if anyone checks this again:

First, a lot of these questions come from the notes and I put them on the homework to re-emphasize the idea because I put the exact same questions on the test & quizzes except in multiple choice format.

Second comment (in response to economyst):

Credit cards are not considered money. This was emphasized in class frequently and was asked on quizzes and tests.

CPI - who does it count? For purposes of this intro class for Non-majors, we only discussed the "core" CPI measure, what's reported and talked about in everyday media. Granted the BLS publishes thousands of CPI indexes each month, but the "CPI-U for All Items Less Food and Energy" is widely referred to as the "core" CPI and is what we discussed in class.

On Fisher's equation of exchange (MV=PT) we were only working with how to do basic manipulation of formulas (i.e. can you get the price variable on one side of the equation so that P=(MV)/T and if so, can you multiply and divide? Velocity and number of transactions are not exactly equivalent. Theoretically they should be, but say you have an economy where the black market is rampant (on an extreme scale), velocity would increase at a much faster rate than the number of legal transactions - probably not at this amount, but this was just to see if the student could apply the formula

Third Comment: Overall, all 3 homework assignments were only 5% of the entire grade and I said it was fine to work with each other and opened up my office beyond my office hours. If students want to use this type of resource for homework help - I'm totally fine with it. I wasn't going to assign any point value to the work since it's primarily a prep for the quizzes/tests, but students seem to like to be rewarded for work so...

Anyway, just posted to say this was a very interesting site to stumble upon. I never thought my assignments were so hard as to yield making it on to such a site!

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posted by Sarah

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