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xBookUtils.showAnswers['krugmanwellsmodulesmacro3-s10m33-cyu-1'] = "The defining characteristic of money is its liquidity: how easily it can be used to purchase goods and services. Although a gift certificate can easily be used to purchase a very defined set of goods or services (the goods or services available at the store issuing the gift certificate), it cannot be used to purchase any other goods or services. A gift certificate is therefore not money since it cannot easily be used to purchase all goods or services.";
xBookUtils.showAnswers['krugmanwellsmodulesmacro3-s10m33-cyu-2'] = "Again, the important characteristic of money is its liquidity: how easily it can be used to purchase goods and services. M1, the narrowest definition of the money supply, consists only of currency in circulation, traveler’s checks, and checkable bank deposits. CDs aren’t checkable—and they can’t be made checkable without incurring a cost because there’s a penalty for early withdrawal. This makes them less liquid than the assets counted in M1.";
xBookUtils.showAnswers['krugmanwellsmodulesmacro3-s10m33-cyu-3'] = "Commodity-backed money uses resources more efficiently than simple commodity money, like gold and silver coins, because commodity-backed money ties up fewer valuable resources. Although a bank must keep some of the commodity—generally gold and silver—on hand, it has to keep only enough to satisfy demand for redemptions. It can then lend out the remaining gold and silver, which allows society to use these resources for other purposes, with no loss in the ability to achieve gains from trade.";
xBookUtils.showAnswers['krugmanwellsmodulesmacro3-s10m33-ct-1'] = "its official status given by the U.S. government";
xBookUtils.showAnswers['krugmanwellsmodulesmacro3-s10m33-ct-2'] = "fiat money";
xBookUtils.showAnswers['krugmanwellsmodulesmacro3-s10m33-ct-3'] = "
- i. commodity money—money that has intrinsic value in other uses
- ii. commodity-backed money—money that has no intrinsic value but can be converted into valuable goods on demand
";
xBookUtils.showAnswers['krugmanwellsmodulesmacro3-s10m34-cyu-1'] = "Even though you know that the rumor about the bank is not true, you are concerned about other depositors pulling their money out of the bank. And you know that if enough other depositors pull their money out, the bank will fail. In that case, it is rational for you to pull your money out before the bank fails. All depositors will think like this, so even if they all know that the rumor is false, they may still rationally pull their money out, leading to a bank run. Deposit insurance leads depositors to worry less about the possibility of a bank run. Even if a bank fails, the FDIC will currently pay each depositor up to $250,000 per account. This will make you much less likely to pull your money out in response to a rumor. Since other depositors will think the same, there will be no bank run.";
xBookUtils.showAnswers['krugmanwellsmodulesmacro3-s10m34-cyu-2'] = "The aspects of modern bank regulation that would frustrate this scheme are capital requirements and reserve requirements. Capital requirements mean that a bank has to have a certain amount of capital—the difference between its assets (loans plus reserves) and its liabilities (deposits). So the con artist could not open a bank without putting any of his own wealth in because his bank would need the required amount of capital—that is, it needs to hold more assets (loans plus reserves) than deposits. So the con artist would be at risk of losing his own wealth if his loans turn out badly.";
xBookUtils.showAnswers['krugmanwellsmodulesmacro3-s10m34-cyu-3'] = "Since they have to hold only $100 in reserves, instead of $200, banks now lend out $100 of their reserves. Whoever borrows the $100 will deposit it in a bank (or spend it, and the recipient will deposit it in a bank), which will lend out $100 × (1 − rr) = $100 × 0.9 = $90. The borrowed $90 will likewise find its way into a bank, which will lend out $90 × 0.9 = $81, and so on. Overall, deposits will increase by $100/0.1 = $1,000.";
xBookUtils.showAnswers['krugmanwellsmodulesmacro3-s10m34-cyu-4'] = "Silas puts $1,000 in the bank, of which the bank lends out $1,000 × (1 − rr) = $1,000 × 0.9 = $900. Whoever borrows the $900 will keep $450 in cash and deposit $450 in the bank. The bank will lend out $450 × 0.9 = $405. Whoever borrows the $405 will keep $202.50 in cash and deposit $202.50 in the bank. The bank will lend out $202.50 × 0.9 = $182.25, and so on. Overall this leads to an increase in deposits of $1,000 + $450 + $202.50 +… But it decreases the amount of currency in circulation: the amount of cash is reduced by the $1,000 Silas puts into the bank. This is offset, but not fully, by the amount of cash held by each borrower. The amount of currency in circulation therefore changes by −$1,000 + $450 + $202.50 +… The money supply therefore increases by the sum of the increase in deposits and the change in currency in circulation, which is $1,000 − $1,000 + $450 + $450 + $202.50 + $202.50 +… and so on.";
xBookUtils.showAnswers['krugmanwellsmodulesmacro3-s10m34-ct-1'] = "The bank must hold $5,000 as required reserves (5% of $100,000). It is holding $10,000, so $5,000 must be excess reserves.";
xBookUtils.showAnswers['krugmanwellsmodulesmacro3-s10m34-ct-2'] = "The bank must hold an additional $50 as reserves because that is the reserve requirement multiplied by the deposit: 5% of $1,000. The bank can lend out $950.";
xBookUtils.showAnswers['krugmanwellsmodulesmacro3-s10m34-ct-3'] = "The money multiplier is 1/0.05 = 20. An increase of $2,000 in excess reserves can increase the money supply by $2,000 × 20 = $40,000.";
xBookUtils.showAnswers['krugmanwellsmodulesmacro3-s10m35-cyu-1'] = "The Panic of 1907, the S&L crisis, and the crisis of 2008 all involved losses by financial institutions that were less regulated than banks. In the crises of 1907 and 2008, there was a widespread loss of confidence in the financial sector and collapse of credit markets. Like the crisis of 1907 and the S&L crisis, the crisis of 2008 exerted a powerful negative effect on the economy.";
xBookUtils.showAnswers['krugmanwellsmodulesmacro3-s10m35-cyu-2'] = "The creation of the Federal Reserve failed to prevent bank runs because it did not eradicate the fears of depositors that a bank collapse would cause them to lose their money. The bank runs eventually stopped after federal deposit insurance was instituted and the public came to understand that their deposits were protected.";
xBookUtils.showAnswers['krugmanwellsmodulesmacro3-s10m35-cyu-3'] = "The balance sheet effect occurs when asset sales cause declines in asset prices, which then reduce the value of other firms’ net worth as the value of the assets on their balance sheets declines. In the vicious cycle of deleveraging, the balance sheet effect on firms forces their creditors to call in their loan contracts, forcing the firms to sell assets to pay back their loans, leading to further asset sales and price declines. Because the vicious cycle of deleveraging occurs across different firms and no single firm can stop it, it is necessary for the government to step in to stop it.";
xBookUtils.showAnswers['krugmanwellsmodulesmacro3-s10m35-ct-1'] = "oversee the Federal Reserve System and serve on the Federal Open Market Committee";
xBookUtils.showAnswers['krugmanwellsmodulesmacro3-s10m35-ct-2'] = "7";
xBookUtils.showAnswers['krugmanwellsmodulesmacro3-s10m35-ct-3'] = "the president of the United States";
xBookUtils.showAnswers['krugmanwellsmodulesmacro3-s10m35-ct-4'] = "14-year terms";
xBookUtils.showAnswers['krugmanwellsmodulesmacro3-s10m35-ct-5'] = "to insulate appointees from political pressure";
xBookUtils.showAnswers['krugmanwellsmodulesmacro3-s10m35-ct-6'] = "4 years; may be reappointed";