# Macroeconomics Assignment

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CH. 14 HOME-WORK ASSIGNMENT; DUE ON 11/22 1. Use the figures in the table below to answer the following questions. | Billions| Small time depositsMoney-market mutual funds held by businessesSavings deposits, including money-market deposit accountsMoney-market mutual funds held by individualsCheckable depositsCurrency| \$125013001620905836325| (a) What is the value of M1? 836 + 325 = \$1161 billion (b) What is the value of M2? 1161 + 1620 + 1250 + 905 = \$4936 billion 2.

Assume that the following asset values (in millions of dollars) exist in Ironmania: Federal Reserve Notes or Bills in circulation = \$700; Money market mutual funds (MMMFs) held by individuals = \$400; Corporate bonds = \$300; Iron ore deposits = \$50; Currency in commercial banks = \$100; Savings deposits, including money market deposit accounts (MMDAs) = \$140; Checkable deposits = \$1500 ; Small-denominated (less than \$100,000) time deposits = \$100; Coins in circulation = \$40. a. What is M1 in Ironmania? b. What is M2 in Ironmania? 3.

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Assume that Jimmy Cash has \$2000 in his checking account at Folsom Bank and uses his checking account card to withdraw \$200 of cash from the bank’s ATM machine. By what dollar amount did the i) M1 and ii) M2 change as a result of this single, isolated transaction? 4. Suppose the price level in year 2009 is 100 and \$100 buys 100 notebooks that year. If the price level rises to 125 in year 2010, what is the new value or purchasing power of the dollar? If, instead, the price level falls to 50, what is the value or purchasing power of the dollar? What relationship do you find between the U. S. price level and the value of the dollar?

The new value of the dollar would 2. 5 that year of the increase. If the amount is decrease by 50 the change will also be 2. 5. The relationship between the price level and the value of the dollar is no matter what the percentage of the dollar the value of the price will always equal the same. 5. How do each of the following relate to the financial crisis of 2007-2008: declines in real estate values, subprime mortgage loans, mortgage backed securities, AIG. The following relates to financial crisis because when we talk about decline in real estate values, the price of the house went down more or less 40% of its market value.

The subprime mortgage loans went up during the crisis. The mortgage backed securities because people weren’t paying for their houses and banks were foreclosing. AIG went direct and started to buy out during the financial crisis 6. What is TARP and how was it funded? What is meant by the term “lender of last resort” and how does it relate to the financial crisis of 2007-2008? The Troubled Asset Relief Program (TARP) is a program of the United States government to purchase assets and equity from financial institutions to strengthen its financial sector that was signed into law by U.

S. President George W. Bush on October 3, 2008. It was a component of the government’s measures in 2008 to address the subprime mortgage crisis. Tarp was founded by congress. On September 19, 2008, Treasury Secretary Henry M. Paulson Jr. proposed a sweeping bailout of financial institutions battered by bad mortgages and a loss of investor confidence. In Mr. Paulson’s original proposal called the Troubled Asset Relief Program he asked Congress for \$700 billion to use to buy up mortgage-backed securities whose value had dropped sharply or had become impossible to sell.

A lender of last resort is an institution willing to extend credit when no one else will. The term refers especially to a reserve financial institution, most often the central bank of a country, intended to avoid bankruptcy of banks or other institutions deemed systemically important or ‘too big to fail’. This term relates to the financial crisis because during the crisis this was all about banking getting money from the government so they could restart their business by this the terms connects to crisis.

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