Discussions and Problem Solving

Discuss what you see to be the most important economic policy of today.
State your rationale for choosing this economic policy.

-Articulate whether it is consumers or policy makers who affect the money supply the most in the U.S. Provide your
rationale with your answer.

-Identify at least two countries you would want to conduct business with based on their favorable exchange rate and
two countries that would not be attractive to do business with.

Describe the influence the gold standard had on shaping the international monetary system.
1. Assume that Banc One receives a primary deposit of $1 million. The bank must keep reserves of 20 percent against
its deposits. Prepare a simple balance sheet of assets and liabilities for Banc One immediately after the deposit is
received.

2. Assume that there are two banks, A and Z, in the banking system. Bank A receives a primary deposit of $600,000,
and it must keep reserves of 12 percent against deposits. Bank A makes a loan in the amount that can be safely lent.

a. Show what bank A’s balance sheet of assets and liabilities would look like immediately after the loan.
b. assume that a check is drawn against the primary deposit made in Bank A and is deposited in Bank Z. Show what the
balance sheet of assets and liabilities would look like for each of the two banks after the transaction has taken
place.

c. Now assume that Bank Z makes a loan in the amount that can be safely lent against the funds deposited in its bank
from the transaction described in (b). Show what bank Z’s balance sheet of assets and liabilities would look like
after the loan.

3. The simplex financial system is characterized by a required reserves ratio of 11 percents; initial excess reserves
are $1 million, and there are no currency or other leakages.

a. what would be the maximum amount of checkable deposits after deposit, expansion, and what would be the money
multiplier?
b. how would your answer in (a) change if the reserve requirement had been 9 percent?

4. Exchange rate relationships between the U.S. dollar and the euro have been quite volatile. When the euro began
trading at the beginning of 1999, it was balued at 1.18 U.S. dollars. By late-2000, a euro was worth only $0.82.
However, by id-2008, a value of a euro reached $1.55. Calculate the percentage changes in the value of a euro from
its initial value to its late-2000 value and to its high mid-2008 value.

5. In mid-March 2007, the U.S. dollar equivalent of a euro was $1.3310. In mid-July 2009 , the U.S. dollar equivalent
of a euro was $1.4116. Using the indirect quotation method, determine the currency per U.S. dollar for each of these
dates.

6. Assume a U.S. dollar is worth 10.38 Mexican pesos and 0.64 euros. Calculate the implied value of a Mexican pesos
in terms of a euro.

 

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