Contagion is the rapid inflation that results from the printing of money the failure of one bank spreading to other banks through depositors withdrawing of funds the rapid contraction of investment...

The federal funds market is the inter-bank market where excess reserves from one bank can be loaned to another bank is the lending to banks by the US treasury when banks face liquidity emergencies is the borrowing by American banks from foreign lenders is the term used for bank borrowing from the Federal Reserve System

The country of Tarragon is a developing economy which has been experiencing a very high level of inflation for the last one year Shira Kapoor a prominent academician is of the opinion that the central bank should intervene and attempt to bring inflation down from the current level of eight percent to an acceptable level between three to five percent Jack Dorian who heads the Industries Federation of Tarragon (IFT) however believes that this will adversely affect the economy The decline in the prices of goods and services as a result of this intervention will reduce overall production in the country When the central bank of Tarragon reduced the money supply inflation was expected to decline to five percent However inflation actually increased further from eight to 10 percent in the following months Which of the following if true can explain this outcome ATarragon is currently operating at full employment BRecent sanctions on two major oil-producing nations caused a shortage of oil globally CThe marginal propensity to consume in Tarragon is estimated to be 08 DThe value of the money multiplier in Tarragon is high EWhile the central bank reduced the supply of money the government also eliminated several subsidy programs to cut spending

In the country of Monesia the central bank requires a minimum reserve ratio of 10 and all the commercial banks always maintain the same reserve ratio as one another The combined T-account of all the commercial banks shows lrlr lticolumn2c Asset lticolumn2c Liability Reserves 50 billion Deposit 500 billion Loans 350 billion Other assets 100 billion Half of the Other assets above are government bonds The people of Monesia also hold some government bonds a) Suppose the central bank purchases 25 billion worth of government bonds from the commercial banks in order to increase the money supply What will be the minimum possible increase of money supply in Monesia Describe how it may happen also find out the excess reserves in the banking system after it happened (4 marks) b) Suppose the same action by the central bank as in Part a) What will be the maximum increase of money supply in Monesa possibly achieved by this action of the central bank Describe how it may happen and show calculations (4 marks) c) Alternative to the above suppose the central bank purchases 20 billion government bonds from the Monesian people for the same purpose of increasing the money supply What is the minimum possible increase of money supply in Monesia Describe how it may happen (4 marks) d) Suppose the same action by the central bank as in Part c) What will be the maximum increase of money supply possibly achieved by this action of the central bank Describe how it may happen (4 marks) e) Continuing with Part d) draw the combined T-account of the all the commercial banks after the events your described in Part d) have happened (5 marks) f) If the central bank wants to achieve the highest increase of money supply by open market operation should it purchase government bonds from the banks or from the people Explain (you can draw hint from your answers above) (4 marks)

Direction Read each item carefully and use your notebook to write your answers 1 Which of the following is not a non-state institution A Bank C Corporations B DepEd D Nore of the choices 2 What is known as the bank of all barks in the Phlippines A Bank of the Philppine Island C Landbank B Cental Bank of the Philippines D Veterans Bank 3 What arganization is legally bound by a charter to conduct a certain type of business A Corporation C Trade Union B Cooperative D None of the choices 4 Which of the following is Not a function of a bank A Serves as link between the source of funds the depositor the fund user and the borrower B Does not provide safe keeping place for money and valuables of individuals C Receive savings and deposits of their dients D Al of the above 5 What does it mean when the corporation has unlimited life A not ceasing to exist if a major stockholder die B the corporate form is the most effective for raising money C spreading business risks among many owners D None of the choices 6 In what category of banks does a private development bank belong A Commercial banks C Rural Banks B Thrift barks D None of the choices 7 It is writter applcalions to the govemment requesting permission to form a corporation A Articles of incorporation C Letter of intent B Request for clearance D None of the choices B Which of the following is a primary reason why banks play significant roles in the countrys economy A They are the ones providing the needs of the people that the government cannot provide B They provide safe-keeping place for money and valuables of individuals C They link in the transler of money from the source to the borrower D Nane of the chaices 9 What refers to a voluntary association of either employees employer or independent workers to protect thei interest and avoid maltreatment A Cooperadve C Corporation B Trade unions D None of the choices 10 What type of cooperative procures and distribute commodities to members and nonmerbers A Credt cooperative C Consume r Cooperative B Producer cooperative D Marketing Cooperative deracampowax