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What happens to velocity if the average price level falls to $2 per unit, the money supply is $2,000, and real GDP is 4,000 units?
Quantity Theory of Money What basic assumption about the velocity of money transforms the equation of exchange into the quantity theory of money?
What will happen to money demand over time? If the Fed leaves the money supply unchanged, what will happen to the interest rate over time?
What does the article say about whether the Fed considers international economic conditions when setting U.S. monetary policy?
Find an article about the central bank of a foreign country. Compare what you read in the article to what you learned about the Federal Reserve in the chapter.
Why does the United States have an absolute advantage in both goods? Which country enjoys a comparative advantage in food? Why?
Suppose that the Federal Reserve lowers the required reserve ratio. What are the money multipliers for required reserve ratios of 0.15 and 0.20?
What are the required reserves on this new deposit? What is the largest loan that the bank can make on the basis? What are the excess reserves on the deposit?
Federal Funds Market What is the federal funds market? How does it help banks strike a balance between liquidity and profitability?
What is the difference between the federal funds rate and the discount rate? What is the ultimate impact on the money supply of an increase in discount rate?
What three tools can the Fed use to change the money supply? Which tool is used most frequently? What are three limitations on the money expansion process?
How can commercial banks create money? Is the government the only institution that can legally create money?
Is the same true of lowering the discount rate? What would happen if the Fed bought U.S. bonds from, or sold them to, the banking system?
Banks Are Financial Intermediaries In acting as financial intermediaries, what needs and desires of savers and borrowers must banks consider?
What portion of U.S. Federal Reserve notes circulate outside the United States? How does this affect the United States?
What types of depository institutions are found in the United States? How do they act as intermediaries between savers and borrowers?
Fiat Money Most economists believe that the better fiat money serves as a store of value, the more acceptable it is. How could people lose faith in money?
Which would you supply as money and which would you supply for smoking? Under what conditions would you use both types of tobacco for money?
Why do you think rice was chosen to serve as money in medieval Japan? What would happen to the price level if there was particularly good rice harvest one year?
Why is universal acceptability such an important characteristic of money? What other characteristics can you think of that might be important to market particip
Global Economic Watch Go to the Global Economic Crisis Resource Center. Compare and contrast attitudes toward balanced national budgets.
Read the editorial In Defense of Debt. Why was the author not concerned about the high U.S. national debt?
What is the new level of gross national debt? What happens to the level of debt held by the public? What happens to the level of gross debt?
In earlier chapters, we've seen that government can increase GDP in short run by running a budget deficit. What are some long-term effects of deficit spending?
Why are the Social Security and Medicare programs headed for trouble? When will the trouble begin? What solutions have been proposed?