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Chapter 5




1.        Assume that Banc One receives a primary deposit of $1 million.  The bank must keep reserves of 20 percent against its deposits.  Prepare a simple balance sheet of assets and liabilities for Banc One immediately after the deposit is received.




6.         Assume a financial system has a monetary base of $25 million. The required reserves ratio is 10 percent and there are no leakages in the system.




a.   What is the size of the money multiplier?




b.      What will be the system’s money supply?








Chapter 6:




9.  Assume that last year the Australian dollar was trading at $.5527, the Mexican peso at $.1102, and the United Kingdom (British) pound was worth $1.4233. By this year the U.S. dollar value of an Australian dollar was $.7056, the Mexican peso at $.0867, and the British pound was $1.8203. Calculate the percentage appreciation or depreciation of each of these three currencies between last year and this year.




    Australian dollar:


    ($.7056 – $.5527)/$.5527 = $.1529/$.5527 = ?%


    Mexican peso:


    ($.0867 – $.1102)/$.1102 = -$.0235/$.1102 =?%


     British pound:


     ($1.8203 – $1.4233)/$1.4233 =  $.3970/$1.4233 = ?%






Chapter 7


4.         Assume personal income was $28 million last year. Personal outlays were $20 million and personal current taxes were $5 million.




a. What was the amount of disposable personal income last year?




         Disposable personal income (DPI) = personal income – personal current taxes


         DPI = $28 million – $5 million = $? million




b. What was the amount of personal saving last year?




         Personal savings (PS) = disposable personal income – personal outlays


         PS = $23 million – $20 million = $? million




c. Calculate personal saving as a percentage of disposable personal income.




              Savings rate = $3 million/$23 million = ?%








4 .A thirty-year U.S. Treasury bond has a 4.0 percent interest rate.  In contrast, a ten-year Treasury bond has an interest rate of 3.7 percent.  If inflation is expected to average 1.5 percentage points over both the next ten years and thirty years, determine the maturity risk premium for the thirty-year bond over the ten-year bond.








a. Inflation rate expected by investors over the life of the thirty-year bond.






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