Introduction to Finance

c. 
Indicate how the money multiplier and the velocity of money 
have changed between two recent years.
2. 
Important policy objectives of the federal government include 
economic growth, high employment, and price stability. The achieve-
ment of these objectives is the responsibility of monetary policy, 
fi scal policy, and debt management carried out by the Federal Reserve 
System, the president, Congress, and the U.S. Treasury. Describe the 
responsibilities of the various policy makers in trying to achieve the 
three economic policy objectives.
3. 
An economic recession has developed, and the Federal Reserve 
Board has taken several actions to retard further declines in economic 
activity. The U.S. Treasury now wishes to take steps to assist the Fed 
in this eff ort. Describe the actions the Treasury might take.
4. 
The president and members of Congress are elected by the people 
and are expected to behave ethically. Let’s assume that you are a 
recently elected member of Congress. A special-interest lobbying 
group is off ering to contribute funds to your next election campaign 
in the hope that you will support legislation being proposed by others 
that will help the group achieve its stated objectives. What would 
you do?
Problems
1. 
Assume that Banc One receives a primary deposit of $1 million. 
The bank must keep reserves of 20 percent against its deposits. Pre-
pare a simple balance sheet of assets and liabilities for Banc One 
immediately after the deposit is received.
2. 
Assume that Bank A receives a primary deposit of $100,000 and 
that it must keep reserves of 10 percent against deposits.
a. 
Prepare a simple balance sheet of assets and liabilities for the 
bank immediately after the deposit is received.
b. 
Assume Bank A makes a loan in the amount that can be “safely 
lent.” Show what the bank’s balance sheet of assets and liabilities 
would look like immediately after the loan.
c. 
Now assume that a check in the amount of the “derivative de-
posit” created in (b) was written and sent to another bank. Show 
what Bank A’s (the lending bank’s) balance sheet of assets and li-
abilities would look like after the check is written.