Central Florida College Winter Park US Money Supply & College Tuition Paper

• 5. If ours were a barter economy, how would you pay your tuition bill? What if your college did not want the goods or services you offered in payment?
• 6. How is “money” defined, both conceptually and in practice? Does the U.S. money supply consist of commodity money, full-bodied paper money, or fiat money?

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3. Suppose banks keep no excess reserves and no individuals or firms hold on to cash. If someone suddenly discovers $12 million in buried treasure and deposits it in a bank, explain what will happen to the money supply if the required reserve ratio is 10 percent.

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4. How would your answer to question 1 differ if the reserve ratio were 25 percent? If the reserve ratio were 100 percent?

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5. What happens to bank balance sheets when each of the following transactions occurs:

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a. You withdraw $100 from your checking account to buy concert tickets.

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b. Sam finds a $100 bill on the sidewalk and deposits it into his checking account.

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c. Mary Q. Contrary withdraws $500 in cash from her account at Hometown Bank, carries it to the city, and deposits it into her account at Big City Bank.

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6. For each of the transactions in Question 5, what will be the ultimate effect on the money supply if the required reserve ratio is one-eighth (12.5 percent)? Assume that the oversimplified money multiplier formula applies.