ECN 211 ASU 2026 EXAM SCRIPT QUESTIONS AND
SOLUTIONS GRADED A+
✔✔Municipal bond - ✔✔Loan money to the government usually the lowest interest rate
but also the least risk of getting paid back. Can loan to foreign governments
✔✔Stocks - ✔✔Purchase ownership in company
✔✔Deposit Certificates - ✔✔Depositing money in a bank
✔✔Y(GDP) - ✔✔Y(GDP) = C + I + G
✔✔S(pub) = PUBLIC SAVINGS - ✔✔S(pub) = PUBLIC SAVINGS = T - G
✔✔S (priv) = PRIVATE SAVINGS - ✔✔S (priv) = PRIVATE SAVINGS = Y - C - T
✔✔S(tot) = PUBLIC PRIVATE SAVINGS - ✔✔S(tot) = PUBLIC PRIVATE SAVINGS = I
✔✔Money can be used as a... - ✔✔- Medium of exchange
- Unit of account
- Store of value
✔✔Medium of exchange - ✔✔using money to pay for things
✔✔Unit of account - ✔✔using money to compare values 1 dollar is like 1 inch
✔✔Store of value - ✔✔Keeping money and saving it for later
✔✔Liquidity - ✔✔How quickly can i use money to pay for something
✔✔Commodity money - ✔✔Paying with things that have a real value trading goods not
paper money
✔✔Fiat Money - ✔✔Money that derives its money from a governmental decree. A dollar
is only worth 100 cents because the government says so
✔✔The Federal Reserve - ✔✔- 12 banks across the country
- Control Monetary Policy
- Use Open Market Operations to set money supply- they buy and sell bonds to
increase or decrease the money supply
- Set required reserve ratio for how much banks must hold in reserves
, ✔✔Banks - ✔✔Banks are required to hold a certain percentage of their deposits in cash
called RESERVES. The fed sets the REQUIRED RESERVE RATIO. Banks can also
choose to hold extra cash on hand called EXCESS RESERVES.
✔✔Banks (2) - ✔✔Any money not held in reserves can be loaned or used to purchase
securities out to other clients who spend the money where it then gets deposited into a
new bank and loaned out again. This created extra money which we find by
✔✔Leverage Ratio - ✔✔All assets (reserves + securities + loans)/ capital (owners
equity)
✔✔Discount Rate - ✔✔Interest rates for banks to borrow from the Fed when they need
to increase their reserves
✔✔Federal Funds Rate - ✔✔Interest rate for banks to borrow from each other for short
(overnight loans)
✔✔Classical Dichotomy - ✔✔The distinction between nominal (today's dollars) and real
variables (the actual worth of the money based on how much you can purchase with it)
✔✔Monetary Neutrality - ✔✔Changes in money supply will only affect nominal values
not real ones
✔✔Inflation - ✔✔Is when nominal values increase over time
✔✔Deflation - ✔✔Is when nominal values decrease over time
✔✔Inflation tax - ✔✔Cost of inflation cause by when the government prints money to
pay off debts
✔✔Velocity of Money - ✔✔The number of times units of currency is used to pay newly
produced goods or services V=(P*Y)/M
V = Velocity, P= Price level, Y= GDP, M= Money supply
✔✔Menu Costs - ✔✔Cost of having to constantly update prices
✔✔Shoe Leather Costs - ✔✔Cost of having to run cash to the bank or use it before it
becomes worthless
✔✔Unit-of-account-costs - ✔✔Inflation causes people to trust money less so it becomes
less useful to measure costs
✔✔Recession - ✔✔A recession is 6 months or more of falling real GDP
SOLUTIONS GRADED A+
✔✔Municipal bond - ✔✔Loan money to the government usually the lowest interest rate
but also the least risk of getting paid back. Can loan to foreign governments
✔✔Stocks - ✔✔Purchase ownership in company
✔✔Deposit Certificates - ✔✔Depositing money in a bank
✔✔Y(GDP) - ✔✔Y(GDP) = C + I + G
✔✔S(pub) = PUBLIC SAVINGS - ✔✔S(pub) = PUBLIC SAVINGS = T - G
✔✔S (priv) = PRIVATE SAVINGS - ✔✔S (priv) = PRIVATE SAVINGS = Y - C - T
✔✔S(tot) = PUBLIC PRIVATE SAVINGS - ✔✔S(tot) = PUBLIC PRIVATE SAVINGS = I
✔✔Money can be used as a... - ✔✔- Medium of exchange
- Unit of account
- Store of value
✔✔Medium of exchange - ✔✔using money to pay for things
✔✔Unit of account - ✔✔using money to compare values 1 dollar is like 1 inch
✔✔Store of value - ✔✔Keeping money and saving it for later
✔✔Liquidity - ✔✔How quickly can i use money to pay for something
✔✔Commodity money - ✔✔Paying with things that have a real value trading goods not
paper money
✔✔Fiat Money - ✔✔Money that derives its money from a governmental decree. A dollar
is only worth 100 cents because the government says so
✔✔The Federal Reserve - ✔✔- 12 banks across the country
- Control Monetary Policy
- Use Open Market Operations to set money supply- they buy and sell bonds to
increase or decrease the money supply
- Set required reserve ratio for how much banks must hold in reserves
, ✔✔Banks - ✔✔Banks are required to hold a certain percentage of their deposits in cash
called RESERVES. The fed sets the REQUIRED RESERVE RATIO. Banks can also
choose to hold extra cash on hand called EXCESS RESERVES.
✔✔Banks (2) - ✔✔Any money not held in reserves can be loaned or used to purchase
securities out to other clients who spend the money where it then gets deposited into a
new bank and loaned out again. This created extra money which we find by
✔✔Leverage Ratio - ✔✔All assets (reserves + securities + loans)/ capital (owners
equity)
✔✔Discount Rate - ✔✔Interest rates for banks to borrow from the Fed when they need
to increase their reserves
✔✔Federal Funds Rate - ✔✔Interest rate for banks to borrow from each other for short
(overnight loans)
✔✔Classical Dichotomy - ✔✔The distinction between nominal (today's dollars) and real
variables (the actual worth of the money based on how much you can purchase with it)
✔✔Monetary Neutrality - ✔✔Changes in money supply will only affect nominal values
not real ones
✔✔Inflation - ✔✔Is when nominal values increase over time
✔✔Deflation - ✔✔Is when nominal values decrease over time
✔✔Inflation tax - ✔✔Cost of inflation cause by when the government prints money to
pay off debts
✔✔Velocity of Money - ✔✔The number of times units of currency is used to pay newly
produced goods or services V=(P*Y)/M
V = Velocity, P= Price level, Y= GDP, M= Money supply
✔✔Menu Costs - ✔✔Cost of having to constantly update prices
✔✔Shoe Leather Costs - ✔✔Cost of having to run cash to the bank or use it before it
becomes worthless
✔✔Unit-of-account-costs - ✔✔Inflation causes people to trust money less so it becomes
less useful to measure costs
✔✔Recession - ✔✔A recession is 6 months or more of falling real GDP
