Chapter 15: Q.21 (page 347)
Does Figure 15-3 depict direct finance or indirect finance? Explain. How could the figure be revised to illustrate the alternative form of finance?
The figure depicts indirect finance
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Identify whether each of the following items is counted in M1 only, M2 only, both M1 and M2, or neither.
a. A balance in a transactions deposit at a mutual savings bank
b. A time deposit in a New York bank
c. A time deposit an elderly widow holds at her credit union
d. A traveler's check not issued by a bank
e. A savings deposit
Match each of the rationales for financial intermediation listed below with at least one of the following financial intermediaries: insurance company, pension fund, savings bank. Fxplain your choices.
a. Adverse selection
b. Moral hazard
c. Lower management costs generated by larger scale
Until , residents of the island of Yap used large doughnut-shaped stones as financial assets. Although prices of goods and services were not quoted in terms of the stones, the stones were often used in exchange for particularly large purchases, such as livestock. To make the transaction, several individuals would insert a large stick through a stone's center and carry it to its new owner. A stone was difficult for any one person to steal, so an owner typically would lean it against the side of his or her home as a sign to others of accumulated purchasing power that would hold value for later use in exchange. Loans would often be repaid using the stones. Which of the functions of money did the stones perform?
In Problem 15-24, what would be the amount of the potential money multiplier that applies to a 100,000$ decrease in reserves caused by a Fed open market sale of that amount? How much would the money supply potentially decrease as a result of this sale?
Draw an empty bank balance sheet, with the heading "Assets" on the left and the heading "Liabilities" on the right. Then place the following items on the proper side of the balance sheet:
a. Loans to a private company
b. Borrowings from a Federal Reserve district bank
c. Deposits with a Federal Reserve district bank
d. U.S. Treasury bills
e. Vault cash
f. Transactions deposits
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