Ch. 14 Reading Guide

Due Tues.
Ch. 14 is written in such a way that it can sometimes be more confusing than helpful.  Use the chapter as a reference to answer the questions, but you need not read the entire chapter.  Rely instead on your class notes and "Goldsmiths" story. 


1.  Why are banks required to hold reserves at all?
2.  Why do banks want to lend as much money as possible?
3.  Do you agree or disagree:  When cash is deposited in a bank, the money supply shrinks and interest rates rise.
4.  What is the money multiplier?  How is the money multiplier calculated?




Due Wed.
1.  Calculate the multiplier for reserve requirements of:  50%, 25%, 10%, 5%, 1%
2.  Describe the relationship between the RR and the MM.
3.  Describe the relationship between the RR and the Sm.
4.  On money market graphs, illustrate the impact of increases and decreases of the reserve requirement.
5.  How do changes in the reserve requirement impact interest rate?