Assignment 1

Question 1: Define:
Business Cycles
Money as store value
Legal tender
Financial intermediary
Inflation
Fiat money
E-cash
Growth rate
Money as unit of account
Question 2: Compare between the following
Wealth and money
Direct and indirect finance
Money and income
Economic growth rate and inflation rate
Time deposit and demand deposit
M1 and M2
Question 3: Illustrate the relation between business cycles, inflation and money
elaborating how to capture the inflation through monetary policy.
Question 4: Illustrate the main factors that work against cashless society.
Question 5: Elaborate major drawback of commodity money and checks
Question 6: Stock is a residual claim. Comment and explain.
Question 7:
a) If the Central Bank of Egypt provides a discount loan of $ 100 million to the
National Bank of Egypt, Show the effect on the monetary base using the balance
sheets of the Central Bank and the National Bank.
b) Calculate the difference of effect on the monetary base if the National Bank of
Egypt repay back only 10 % of the discount loan to the CBE.
Question 8: The effect of an open market purchase on reserves differs depending on
how the seller of the bonds keeps the proceeds. If the Central Bank buys a $ 100 million
bonds to the National Bank, show the effect on the monetary base using the balance
sheets of the Central Bank and the National Bank.

Question 9: In the simple deposit expansion model, show the effect on money supply
if an expansion in checkable deposits of $1,000 happens when the required reserve ratio
is equal to 10 percent.

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Question 10: If the required reserve ratio is 10 percent, currency in circulation is $400
billion, checkable deposits are $800 billion, and excess reserves total $0.8 billion,
calculate the money supply amount using the composite multiplier.

Question 11: What is the effect on the monetary base if the non-bank public decided
to withdraw a $ 100 million from the National Bank? Then, Show the effect on the
monetary base if the non-bank public deposits $ 80 million in the Arab Bank. Use the
Balance sheets of the Banking system and the non-bank public.
Question 12: Illustrate the composition of monetary aggregates in Egypt and give a
sight explanation based on M3 on the reason and the effect of the high money supply
in Egypt.
Question 13:

If the required reserve ratio = 0.1, currency in circulation = $400B, checkable deposits
= $900B and excess reserves = $0.6B
a) Calculate the money multiplier and interpret your results
b) If required reserve to deposit ratio increases from 10% to 15%, what happens
to money multiplier?
c) Suppose that currency to deposit ratio rises to 0.75, show the effect on money
multiplier and money supply?
d) Suppose that excess reserves to deposit ratio rises to 0.005, show the effect on
money multiplier and money supply?

Question 14:

If the required reserve = 10 million, excess reserves = 20 million, currency in

circulation = 800 million and checkable deposits = 500 million. Calculate the money
multiplier and the money supply.

Question 15:

Given the currency to deposit ratio equals 0.5, excess reserve to deposit ratio equals
0.01 and required reserve to deposit ratio equals 0.1. Show the amount of money
multiplier and interpret the effect on the money supply if the monetary base increased
by $ 200 million.