Writing

ECON 3311: MONEY & BANKING

HOMEWORK #6

Define the following terms:

central bank   monetary policy

Federal Reserve  IORB rate

Board of Governors   federal funds rate

Federal Open Market Committee   quantitative easing  

Central bank – an institution charged with controlling the nation’s money supply

Federal Reserve – a government institution that was established in 1923 by congressional act

Board of Governors – located in Washington D.C and represents the centralized decision-making of the Fed, consist of 7 governors.

Federal Open Market Committee– is a gathering of all seen governors and all 12 presidents of the District Banks

Monetary policy – policy implemented by the central bank that influences the flow of money and credit in the economy

IORB rate – the interest rate that the Fed pays banks for their deposited reserves

Federal funds rate – banks that lend reserves charge an interest rate to other banks who borrow reserves.

Quantitative easing – Federal reserve put large amounts of reserves into the banking system

Answer the following:

1. Go to http://research.stlouisfed.org/publications/ and go to Page One Economics. Filter the year to 2020 and scroll down to the publication “Independence, Accountability, and the Federal Reserve System”. Read the 5-page article and answer the following:

a. The first section describes policy events that we will discuss later in the semester. Go to the second section and how and why the Federal Reserve maintains a degree of independence from the political branches of government.

b. From the third section, state which part of the Federal Reserve is representative of national interests and which part is representative of regional interests.

c. From the fourth section, describe the difference between how Fed governors are put into their positions versus how District Bank presidents are put into their position. Which is most closely tied to the political process?

d. From the final section, state the ways in which the Fed is accountable to Congress.

2. Write out a simple balance sheet for a bank. State the three ways in which a bank’s assets can generate revenue, and rank those assets according to their riskiness.

3. Go to https://fred.stlouisfed.org/ and click on the “Category” link below the search box. Find the heading “Money, Banking, & Finance” and click on “Monetary Data”, then “Reserves”, and then “Reserves of Depository Institutions: Total”. Answer the following:

a. In which year did bank reserves first show an accelerated increase? What was special about that year?

b. We described the behavior of quantitative easing (QE) in class. Looking closely at the graph, can you identify the periods of QE? (HINT: Look for periods of obvious increase in bank reserves.)

c. What is it called when the Fed maintains plentiful reserves the banking system?

4. a. How can the Federal Reserve control the federal funds rate through its administration of the IORB rate?

b. Go to https://fred.stlouisfed.org/ and click on the “Categories” link under the search box. Click on “Money, Banking, & Finance” and then “Interest Rates”. Click on “FRB Rates” and then on the series “Federal Funds Effective Rate”.

Change the graph range to 5Y and describe the pattern of the federal funds rate over this period.

c. Go back to the “Interest Rates” page and click on “Prime Bank Loan Rate” and then on the series “Bank Prime Loan Rate”.

This is the interest rate that banks use as a base rate for their loans. In other words, an increase in the prime rate will typically result in an increase in all bank lending rates, including business loans, variable rate credit cards, auto loans, etc. It can be considered a short-term rate.

Change the graph range to 5Y and describe the pattern of the prime rate over this period. How does it compare to the series from part a?

d. Go back to the “Interest Rates” page and click on “Treasury Constant Maturity”. Scroll down and look at the series “Market Yield on U.S. Treasury Securities at 30-Year Constant Maturity, Quoted on an Investment Basis”.

This is the interest rate offered on 30-year Treasury bonds that the government uses to borrow. It is one of the major long-term interest rates in the US economy.

Change the graph range to 5Y and describe the pattern of the 30-year Treasury rate over this period. How does it compare to the series from part a?

e. Using your answers to parts b – d, do interest rate changes by the Fed (as indicated by your answer to part a) seem to influence short-term and long-term market interest rates in the same way? Explain.

 Financial Planning

** Discussion Question  

Topic 2: Credit Score

We can all agree that a good credit score is an advantage when buying a car or home, starting a business, or finishing a college degree.

For this discussion, you are a financial counselor responsible for helping people with poor credit get back on track. With that in mind, engage in a conversation related to at least ONE of the following:

· Create a plan to help your clients understand, repair, and monitor their credit scores.

· Share key things they should be doing to improve their credit scores.

 Financial Planning

** Discussion Question  

Employability Skills and Your Life 

Topic 1: Employability Skills and Your Life

Throughout this course, you have engaged with materials and activities related to the following employability skills: Problem-solving to find creative, effective, ethical, and evidence-based solutions to economic and financial challenges. Productivity to plan and organize your finances as new priorities and needs emerge. Technology to complete tasks and goals, communicate complex financial data effectively, and stay competitive. Agility to embrace change and adapt so you can achieve the results you desire. Think about what you have learned about these skills and how you have applied them. Then think about three main areas of your life:

· academics,

· personal, and

· professional.

With the above in mind, engage in conversation and address ONE of the following:

· Which skill from this course do you think will be most useful in your academic life? What is the one action you could take using that skill to make a positive change?

· Which skill from this course do you think will be most useful in your personal life? What is the one action you could take using that skill to make a positive change?

· Which skill from this course do you think will be most useful in your professional life? What is the one action you could take to use that skill to make a positive change?

 

Week 1

1.Opportunity Costs

What do economists mean by “opportunity cost?”  What are your opportunity costs in taking this course?

2.Demand v. Quantity Demanded

What is the difference between a decline in the quantity demanded and a decline in demand? Give an example of something that you now buy less of. Is it an example of a decline in the quantity you demand or a decline in your demand?

Business Finance – Economics HOMEWORK

-250 words each discussion

-2 references each discussion

Discussion 1:

Watch the video clip from  Jingle All the Way .   (View  Transcript.)   

Consider the following: Prices serve a rationing function. When quantity demanded exceeds quantity supplied, prices rise to alleviate the shortage. When quantity supplied exceeds quantity demanded, prices fall to alleviate the surplus. However, when prices are inflexible, shortages and surpluses persist. Other rationing mechanisms must develop.

1. Using demand and supply analysis, describe a specific situation that you have witnessed where a shortage occurred. Why were prices unable to adjust in this market?

2. Combining what you learned from your readings as well as from the video clip, what other rationing functions could develop to alleviate that shortage?

Citation: Barnathan, M., Columbus, C., Radcliffe, M. (Producers), & Levant, B. (Director). (1996). Jingle all the way [Motion picture]. United States: Twentieth Century Fox.

Discussion 2

Watch the video clip from  Bart Gets an Elephant.   (View  Transcript.) 

Consider the relationship between price elasticity of demand and total revenue, and why Homer didn’t make the smartest business decision when raising the price of admission. For this week’s discussion question, you should pick two products: one that is relatively price inelastic and another that is relatively price elastic. You can determine a product’s relative price elasticity by considering the Determinants of the Price Elasticity of Demand listed in your textbook. You should begin by defining your product in terms of the determinants and then describe how increases in the price would affect total revenue.Would it make good business sense to be the one producing and selling these products? Why or why not?

Discussion 3

Watch the video clip from  Cool Hand Luke .   (View  Transcript.)   

Consider how marginal benefits and marginal costs fit into Luke’s decision, and how the concept of diminishing marginal utility is at work as Luke eats more and more eggs.

a. What is driving his marginal benefits to continue to exceed his marginal cost?

b. Consider how Luke’s decision would change if he had to actually pay for each egg he eats. How would this affect his choice to continue eating?

c. Consider the concept of marginal utility per dollar spent (i.e. MU/P) and how it affects the consumption decisions we make. Think of a time when you ended up buying your second choice instead of your first choice. Explain how that decision was made because it wasn’t only about marginal utility for you, but about marginal utility per dollar spent.

Citation: Carroll, G. (Producer), & Rosenburg, S. (Director). (1967). Cool Hand Luke [Motion picture]. United States: Warner Brothers.