dollars and dollar

dollars and dollar conversions caused gold drains from the U.S. official coffers. Speculation in currency markets led to more gold drains in the late 1960s, further straining gold reserves. Thus, in 1971 gold convertibility of the dollar was suspended.
9. A liquidity infusion into the banking system, that is, an increase in bank reserves, can support more than the amount of the infusion in bank deposits. Reserves need be only r percent of deposits, where r is the reserve requirement.
Reserves = (r) (Deposits)
Reserves/r = Deposits
Thus a change in bank reserves can increase the money supply (deposits) by this multiple-- Reserves /r.
10. An inadequate money supply can inhibit economic development when productive investments are forgone. An inadequate money supply also constrains consumer spending, which is a large segment of the U.S. economy.
ANSWERS TO END-OF-CHAPTER PROBLEMS
1. The price of each commodity is determined by setting the appropriate quantities equal to each other in value. The equation is solved first for the value of one yard of material and then for the value of one bale of hay.
5 yards of material = 10 bales of hay
1 yard of material = 2 bales of hay
.5 yard of material = 1 bale of hay
2. At the time that the speculator borrowed the
dollars, each dollar could be converted into
The total proceeds after conversion are
When the pounds are converted back into
dollars, each pound is worth $1.90, for total
proceeds of $102,695 (54,O5O multiplied by 1.90
$/). The profit is $2,695.