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Chapter 13 - Money and Banks Chapter 13 Web Activities 1. Go to the Federal Reserve System’s website at http://www.federalreserve.gov/ and click on “Economic Research & Data.” Then choose “Statistical Releases and Historical Data.” Find a table called “Aggregate Reserves of Depository Institutions and the Monetary Base.” (Table H.3) a. What is the latest level of required reserves? What are total reserves? b. Based on your answer to part a, what is the approximate average required reserve ratio? (Different banks are subject to different requirements, based on size, but for the purposes of this problem, we want to know the average requirement in the banking system.) Calculate the money multiplier. c. Are banks keeping excess reserves? What is the potential for deposit creation? d. Check the table called “Money Stock Measures.” What is the current level of the M1 money supply? If all of the potential deposits from part c were actually created, what would be the new level of the M1 money supply? e. Increases in the money supply without increases in real GDP lead to increases in the price level because the economy is simply using more money to buy the same amount of stuff. Assuming all other things equal, how much inflation (as a percentage) would this deposit creation cause? 2. At the NOVA Online section of PBS’s website, there is an interesting article on the history of money (http://www.pbs.org/wgbh/nova/moolah/history.html). a. Choose one item that was used as money in the past. Explain how this “money” could be used today to fulfill the purposes of money described in this chapter. Give a real-life example of each. b. How well would this money fulfill the purposes of money described in this chapter? What are the advantages and drawbacks of using this money as opposed to currency like the US dollar? 3. Visit Bankrate (http://www.bankrate.com/) and click on “Graph Rates” under the Interest rates trends and analysis. Use the graphing tool to compare interest rates in your state over the last five years. a. Under the category of “Mortgage Loans,” compare 30-year fixed mortgage rates to 10-year fixed mortgage rates. Which is generally higher, and why do you think that is? Do these two rates seem to be closely linked? b. Under “Loans & Lines of Credit,” compare 36-month new car loan rates to 36-month used car loan rates. Again, which is higher, and why do you think that is? Are these two rates closely linked? c. Finally, under “Loans & Lines of Credit,” compare the rates for a 36-month new car loan and a 48-month new car loan. Which rate is generally higher, and why do you think that is? Are these two rates closely linked? 13-1