the monetary system in any economy facilitates trade and allows people to trade more efficiently as compared to a barter economy in the united states the monetary authority is the federal reserve system also referred to as the federal reserve or info

Part A

The monetary system in any economy facilitates trade and allows people to trade more efficiently, as compared to a barter economy. In the United States, the monetary authority is the Federal Reserve System (also referred to as the Federal Reserve, or informally, as the “Fed”.)

For this assignment, use the information presented in the textbook and the Fed’s website (http://www.federalreserve.gov/) when addressing the questions below.

• What are the requirements for something to be considered money? Why does the dollar have value?
• What does the money supply consist of and what are the respective amounts in the total money supply for the United States?
• What are the primary functions of the Fed? What role does the Federal Open Market Committee (FOMC) play in our economy?
• What role do the financial institutions (commercial banks and other institutions) play in our financial system?
• What is meant by the term “fractional-reserve banking” in our system? What are the implications for consumers?
• What are the tools available to the FED for controlling the money supply? Which are used most often? Which are most effective?
• How does the money multiplier help to determine the effects of monetary policy?
• What are the pros and cons of using monetary policy, as opposed to the use of fiscal policy, for implementing economic policies and practices?

Deliverables:

• Prepare a 3-4 page Microsoft Word document that addresses the above-noted concerns and meets APA standards.
• Include a summary section in your report that contains 5-7 bullet points identifying your major findings or conclusions of your paper.

Part B

Changes in Monetary Policy

Assume that the Bank of Ecoville has the following balance sheet and the Fed has a 10% reserve requirement in place:

Now assume that the Fed lowers the reserve requirement to 8%.

1. What is the maximum amount of new loans that this bank can make?
2. Assume that the bank makes these loans. What will the new balance sheet look like?
3. By how much has the money supply increased or decreased?
4. If the money multiplier is 5, how much money will ultimately be created by this event?
5. If the Fed wanted to implement a contractionary monetary policy using reserve requirement, how would that work?

Submission Details:

• Address the questions above, showing your calculations.
• Develop your analysis in Microsoft Excel format.
• Enter non-numerical responses in the same worksheet using textboxes.

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