Introduction to Finance

 1. 
(LO 5.1)
List and describe briefl y the economic policy objectives 
of the nation.
 2. 
(LO 5.2)
Describe the relationship among policy makers, the 
types of policies, and their economic objectives.
 3. 
(LO 5.3)
Discuss how the U.S. government infl uences the economy 
and how the government responded to the 2007–09 perfect fi nancial storm.
 4. 
(LO 5.4)
Describe the eff ects of tax policy on monetary and 
credit conditions.
 5. 
(LO 5.5)
Federal government defi cit fi nancing may have a very 
great infl uence on monetary and credit conditions. Explain.
 6. 
(LO 5.5)
Discuss the various objectives of debt management.
 7. 
(LO 5.6)
Explain how Federal Reserve notes are supported or 
backed in our fi nancial system.
 8. 
(LO 5.6)
Why are the expansion and contraction of deposits by 
the banking system possible in our fi nancial system?
 9. 
(LO 5.6)
Trace the eff ect on its accounts of a loan made by a bank 
that has excess reserves available from new deposits.
 10. 
(LO 5.6)
Explain how deposit expansion takes place in a banking 
system consisting of two banks.
 11. 
(LO 5.6)
Explain the potential for deposit expansion when 
required reserves average 10 percent and $2,000 in excess reserves 
are deposited in the banking system.

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C H A PT E R 5 Policy Makers and the Money Supply
Exercises
1. 
Go to the St. Louis Federal Reserve Bank’s website at http://www.
stlouisfed.org, and access current economic data. 
a. 
Find M1 and the monetary base, and then estimate the money 
multiplier.
b. 
Determine the nominal gross national product (GNP in current 
dollars). Estimate the velocity of money using M1 from (a) and 
nominal GNP.