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Problem Set III
Name & Section: ____________________________
Note: Academic researchers have shown the strong link between writing information by hand and
memory retention. I strongly advise students to complete this by hand. Please take the time to make
sure your writing is legible.
1. Money & Banking
A) Define (in your own words, please do not use the book, or other online resources) and give a
strong, unique, example for the following terms. Answers will be checked for originality.
Store of Value:
____________________________________________
_____________________________________________________
_____________________________________________________
Automatic Stabilizer: _________________________________________
_____________________________________________________
_____________________________________________________
FOMC: _________________________________________________
_____________________________________________________
_____________________________________________________
Discount Rate: ____________________________________________
_____________________________________________________
_____________________________________________________
List the names and dates of the last four chairmen of the FED, starting with the current one:
_____________________________________________________
_____________________________________________________
__________________________________________
_____________________________________________________
_____________________________________________________
Transaction Costs:
_________________________________________
_____________________________________________________
_____________________________________________________
Federal Funds Rate:
Section 1: Money Supply
Look at the following H6 report from the Federal Reserve:
http://www.federalreserve.gov/releases/h6/current/H6.pdf
For the most recent available month and one year before that, fill out the following table (use
seasonally adjusted figures):
Category
Most
Recent
One Year
Before
Percentage
Change
Currency
Demand Deposits
Traveler’s Checks
Checkable Deposits at Commercial Banks
Checkable Deposits at Thrift Institutions
Savings Deposits at Commercial Banks
Savings Deposits at Thrift Institutions
Small-Denomination Time Deposits, total
Retail Money Funds
What is M1 in the most recent year?
One year before?
Percentage change?
What is M2 in the most recent year?
One year before?
Percentage change?
_________________
_________________
_________________
_________________
_________________
_________________
What category most caused the change in M2? _________________
Section 2: Fiscal Policy
Graph the following situation for the economy:
1)
Current Real GDP = $17.5T
Potential Real GDP = $20T
MPC = .9
How much would be necessary to close the recessionary / inflationary gap (circle one)
using government spending?_____________ or taxes________________?
2)
Current Real GDP = $21.5T
Potential Real GDP = $20T
MPS = .2
How much would be necessary to close the recessionary / inflationary gap (circle one)
using government spending?_____________ or taxes________________?
Section 3: Federal Budget & National Debt
Take the Federal Budget Challenge and try your hand at fixing the problems with the economy.
https://www.federalbudgetchallenge.org
When taking this challenge, use your economic reasoning skills to decide what to cut and raise
for the different spending/taxing categories.
Copy & paste your summary below:

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