(Solution) 1a. (i) If There Was No Item In The Economy Widely Accepted In Return For Goods And Services, How Would Transactions Be Made? How Efficient Would | Snapessays.com


(Solution) 1a. (i) If there was no item in the economy widely accepted in return for goods and services, how would transactions be made? How efficient would


Hi. I need the correct answers for these questions so I can review for the final exam. Can you help?

 

 

1a.

 

(i) If there was no item in the economy widely accepted in return for goods and services, how would transactions be made? How efficient would such a system be?

 

(ii) What is the difference between a medium of exchange and a store of value?

 

(iii) What is the difference between commodity money and fiat money?

 

(iv) Are credit cards money?

 

(v) Under what circumstance can banks not influence the supply of money?

 

 

1b. If Coke sells for $1.20 Canadian and for .75 pounds in the U.K., determine what the exchange rate should be if purchasing power parity holds.

 

 

2a. If the chartered banks decide to maintain an average reserve ratio of zero, what would be the size of money multiplier? Explain why.

 

2b. Suppose that the Bank of Canada sells 100 million pounds sterling from its foreign exchange reserves, and that the exchange rate is $2.40 Canadian per pound sterling.

 

(i) Explain what happens to the Canadian money supply.

 

(ii) Now suppose that the Bank of Canada does not want the money supply to change. What would it need to do to sterilize its foreign exchange market operation?

 

 

2c. (i) Paper currency is the most easily recognized form of money. How well does paper currency serve the functions of money if we have an inflation rate of

 

50-percent per year?

 

(ii) Gold is also recognized as a form of money. How well does gold serve the functions of money if we have an inflation rate of 50-percent?

 

 

3. Assume that the banking system has no excess reserves. The combined balance sheet of all chartered banks is (in million of dollars)

 

 

ASSETS LIABILITIES

 

Reserves $15,000

 

Securities and loans $135,000 $150,000 Deposits

 

$150,000 $150,000

 

Suppose the general public purchase $500 million in government bonds and pay for them by drawing cheques on their chartered bank deposits.

 

(i) Calculate the (target) reserve requirement.

 

 

(ii) What is the immediate effect on chartered bank reserves and deposits? Provide the balance sheet.

 

 

What is the ultimate effect on chartered bank reserves, deposits, and loans? Provide the final balance sheet.

 

 

4c. If there was a decline in price over time (deflation), why would this be a concern to workers, consumers, and retailers?

 

 

5a. Explain the difference between the real exchange rate and the nominal exchange rate.

 

5b. If a Japanese car costs 500 000 yen, if a similar Canadian- produced car costs $10,000, and if a dollar can buy 100 yen, what are the nominal and real exchange rates?

 

5c. Explain the relationship among saving, investment, and net foreign investment.

 

What is happening to Canada's real exchange rate in each of the following situations? Explain.

 

(i) The Canadian nominal exchange rate is unchanged, but prices rise faster in Canada than abroad.

 

(ii) The Canadian nominal exchange rate is unchanged, but prices rise faster abroad than in Canada.

 

(iii) The Canadian nominal exchange rate declines and prices are unchanged in Canada and abroad.

 

(iv) The Canadian nominal exchange rate declines and prices rise faster abroad than in Canada.

 

 

6a. How would a fall in U.S. interest rates affect Canadian investment, saving, net foreign investment, and the Canadian real exchange rate?

 

 

6b. The federal government has made significant efforts to turn the federal deficit into a surplus over the last few years. Explain how this is likely to impact on domestic investment, private saving, the trade balance, and net foreign investment for Canada.1a

 

.

 

(i) If there was no item in the economy widely accepted in return for goods and

 

services, how would transactions be made? How efficient would such a system

 

be?

 

(ii) What is the difference between a medium of exchange and a store of value?

 

(iii) What is the difference between commodity money and fiat money?

 

(iv) Are credit cards money?

 

(v) Under what circumstance can banks not influence the supply of money?

 

1b

 

. If Coke sells for $1.20 Canadian and for .75 pounds in the U.K., determine what

 

the exchange rate should be if purchasing power parity holds.

 

2a.

 

If the chartered banks decide to maintain an average reserve ratio of zero, what

 

would be the size of money multiplier?

 

Explain why.

 

2b.

 

Suppose that the Bank of Canada sells 100 million pounds sterling from its

 

foreign exchange reserves, and that the exchange rate is $2.40 Canadian per pound

 

sterling.

 

(i)

 

Explain what happens to the Canadian money supply.

 

(ii) Now suppose that the Bank of Canada does not want the money supply to change.

 

What would it need to do to sterilize its foreign exchange market operation?

 

2c

 

. (i) Paper currency is the most easily recognized form of money.

 

How well does

 

paper currency serve the functions of money if we have an inflation rate of

 

50-percent per year?

 

(ii) Gold is also recognized as a form of money.

 

How well does gold serve the

 

functions of money if we have an inflation rate of 50-percent?

 

3.

 

Assume that the banking system has no excess reserves.

 

The combined balance

 

sheet of all chartered banks is (in million of dollars)

 

ASSETS

 

LIABILITIES

 

Reserves

 

$15,000

 

Securities and loans $135,000

 

$150,000

 

Deposits

 

$150,000

 

$150,000

 

Suppose the general public purchase $500 million in government bonds and pay for

 

them by drawing cheques on their chartered bank deposits.

 

(i)

 

Calculate the (target) reserve requirement.

 

(ii) What is the immediate effect on chartered bank reserves and deposits?

 

Provide

 

the balance sheet.

 


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