Introduction to Finance

a. 
Calculate the dollar amount of the money supply under each 
scenario or outcome.
b. 
Calculate the expected value of the money supply, taking into 
consideration each scenario and its probability of occurrence.
c. 
Scenario C is the most likely scenario given that its probability 
of occurrence is 40 percent. Show how the amount of the money 
supply would change holding real output at 500,000 units and the 
price level at $100 for each of the velocity of money turnover rates 
(you have previously calculated the money supply under Scenario 
C for a turnover of 3.0 times).
d. 
Repeat the Scenario C exercise in (c) but now hold the velocity 
of money at 3.0 times and price level at $100 and allow real output 
to change.
e. 
Repeat the Scenario C exercise in (c) but now hold the velocity 
of money at 3.0 times and real output at 500,000 units and allow 
price level to change.

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CHAPTER 
3
Banks and Other Financial 
Institutions
L E A R N I N G O B J E C T I V E S
After studying this chapter, you should be able to do the following:
LO 3.1 
Describe how fi nancial institutions were impacted by the fi nancial crisis.
LO 3.2
Identify the major fi nancial institutions and their roles in the fi nancial system.
LO 3.3
Describe how commercial banking and investment banking diff er, and identify the 
functions of banks and the banking system.
LO 3.4 
Discuss the historical development of the U.S. banking system.
LO 3.5
Discuss general regulation of the banking system and how depositors’ funds are 
protected.
LO 3.6
Describe the structure of banks in terms of bank charters, branch banking, and bank 
holding companies.