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The Monetary System (Chapter 29 or Chap 29) and Macro1 (ECON1010), Sem. 2 2017 Question Set

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Introductory Microeconomics (ECON1010 Introductory Microeconomics)

   

Added on  2020-04-07

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Only a single submissionpermitted (hence, please ensure to attach the file version of the assignment) Use and Submit this template onlyfor your submission (i.e., write down your answers in the space provided in each question and submit) – any other form of the file is NOT accepted (Failing to do so will automatically mean zero mark for this task). If you do not have a word processor installed in your home computer, follow this link and in “APPS” you can use

The Monetary System (Chapter 29 or Chap 29) and Macro1 (ECON1010), Sem. 2 2017 Question Set

   

Introductory Microeconomics (ECON1010 Introductory Microeconomics)

   Added on 2020-04-07

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Macro1 (ECON1010), Sem. 2 2017Question SetTutorial Time and Day: _______________________________________________________________________________________________Student Name: ________________________________________________________________________________________________________Student ID: _____________________________________________________________________________________________________________This assignment covers the following topics:The Monetary System (Chapter 29 or Chapter 10)Inflation: Its causes and costs (Chapter 30 or Chapter 11)Aggregate Demand and Aggregate Supply (Chapter 33 or Chapter 14)READ THE FOLLOWING FIRST (Very Important)1.This assignment contributes to 20% of the overall marks for the course. 2.Only a single submissionpermitted (hence, please ensure to attach the file version of theassignment)3.Use and Submit this template onlyfor your submission (i.e., writedown your answers in the space provided in each question and submit) – any other form ofthe file is NOT accepted (Failing to do so will automatically mean zero mark for this task).4.If you do not have a word processor installed in your home computer, follow this link and in “APPS” you can use a Microsoft word processor; http://www1.rmit.edu.au/students/mydesktop5.The recommended browsers when uploading the file areChrome, Firefox or Explorer (some havesuggested that Safari might not work well).6.The font size has to be at least 12.7.Explain your answers, but be succinct. 8.Label each axis and explain thediagram that you use carefully (if any). 9.Show all of your working in order to get partial credits.10.After the due dateany late submission will be marked as ‘late’. A penalty of 10% of the allocatedmarks (i.e., 2 marks) per day will apply for late submissions.11.A failure of your home computer (or any kind of the IT problem) cannot be a reason for the late submission (all requests for an extension of this nature will be rejected immediately). 12.Make sure you have included your student ID and name in the front page of the assignment13.Working with other fellow students is strongly encouraged. However, you cannot just copy yourfriend’s answers. If we find out this, you will be harshly punished for the academic plagiarism.See‘students responsibilities’ at RMIT’s policy on this: 14.http://www1.rmit.edu.au/browse;ID=sg4yfqzod48g1Page 1 of 5
The Monetary System (Chapter 29 or Chap 29) and Macro1 (ECON1010), Sem. 2 2017 Question Set_1
Macro1 (ECON1010), Sem. 2 2017Question SetShort Answer Questions:1.Consider an economy in which initially there are no banks. Suppose that one consumer initially holdsthe entire money supply in the form of $1,000 in currency. Then assume a new bank is opened, TheFirst National Bank, and the consumer deposits the entire $1,000 into the bank. Based on thisscenario answer the following questions (5 marks):a.Assuming that the First National Bank has a 100% reserve ratio, use a T account to show what effect thisdeposit will have. (0.5 mark)Liabilities AssetsDeposit - $ 1,000Reserve - $ 1,000b.Still assuming a 100% reserve ratio, explain what effect this deposit will have on the economy’s total moneysupply. (1 mark)As the reserve ratio is 100% hence, it implies that the bank is not lending any money and keeping allthe money with them. Hence, since no money is lent, hence the deposit would not have any impacton the total money supply.c.Show how the First National Banks T account will look, if instead it has a 10% reserve ratio and holds noexcess reserves. (0.5 mark)AssetsLiabilities10% Reserve - $ 100Deposit - $ 1,000Loan - $ 900d.Following form c. if other banks now open up and face a 10% reserve ratio, and assuming that everyconsumer holds her or his money as deposits instead of currency, explain what effect the initial deposit willeventually have on the money supply. (1 mark)Money supply would increase as the reserve ratio is 10%. Hence, the other banks after segregatingthe 10% amount from the $ 1,000 can essentially lend the remaining $ 900 to the public and hencethere would be an increase in the money supply arising in this manner.e.Are consumers as a group wealthier when the banking system chooses a 10% reserve ratio. Explain thereasons for your answer. (2 marks)The consumers as a group would emerge wealthier on account of the lower reserve ratio of 10%. This isbecause now the consumers can park their funds in the bank and since the banks can lend, hence thedepositors would also earn some interest which would be absent in the previous case. Also, owing to lendingby the bank of the 90% deposits, there would be increased money supply which would lead to lowering of theinterest rate and the related financial costs. Page 2 of 5
The Monetary System (Chapter 29 or Chap 29) and Macro1 (ECON1010), Sem. 2 2017 Question Set_2

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