NOT AGAIN?!?!? Macroeconomics

There are 3 parts to this week’s assignment

Part 1: Search databases to research and compose a 5-

paragraph essay, also use peer reviewed sites (APA format) to identify a minimum of 3 economic concepts and/or

theories from this course and how they relate to some current event (properly cite a

minimum of three electronic references ).

Some concepts:

· Principles of Economics

· Economic Models and Trade

· Supply and Demand and Market Intervention

· Macroeconomics: National Income

· Economic Growth and the Loanable Funds Market

· Aggregate Demand and Aggregate Supply

2. Record the methods you used to discover these sources.

3. Which databases did you search? What combination of search terms did you use?

Which methods resulted in the most hits? Which methods resulted in few or no hits?

Part 2: Review the information from your reading this week to learn how banks “create” money and then answer the following questions:

Explain in your own words the process by which banks “create” money.

Discuss the impact of that ability to create money on the economy during an inflationary gap, as well as during a recessionary gap.

Considering the higher rates of unemployment and the likelihood of lower prices during a recessionary gap, do banks with their lending policies, contribute to a recovery back to potential output, or hinder that recovery? Why do you believe your answer to be correct? What about during an inflationary gap?

Part3: check attached document

Part

3

unit Assignment

Question:

In Westlandia, the public holds

5

0% of M

1

in the form of currency, and the required reserve ratio is

2

0%.

1. 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 $

10

0 in minimum reserves — 20% of the $500 deposit — against this deposit, leaving $

4

00 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.)

$400.00

$200.00

$200.00

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Round	Deposits	Required reserves	Excess reserves	Loans	Loan proceeds held as currency	Loan proceeds deposited
1	$500.00	$100.00		$400.00			$200.00
2
3
4
5
6
7
8
9
10
totals

2. How does your answer compare to an economy in which the total amount of the loan is deposited in the banking system and the public does not hold any of the loans in currency? (Hint: Do another table with none of the loan proceeds held in currency.)

3. What does this imply about the relationship between the public’s desire for holding currency and the money multiplier?