Money and Banking

Money and Banking
Final Exam
Dr. StrangeFed or How I Learned to Stop Worrying and Love the
Liquidity Bomb.
Due July 7th, 2021, 11:59 PM.
See the posted resources regarding the Discontinuation of the $100 Bill and Calls for Regulating Crypto
and Crime. In this exam you will research the relationship between criminal activity and the “medium of
exchange” as compared to the “store of value” of assets influenced by Federal Reserve Policy. All
necessary data are provided on FRED with a corresponding tag, or in the Appendices.
Submit this as a DocX or PDF file. For the True/False questions, just place your answer under the
question and bold it. For essay questions use 12 point font, double spaced, and cite any outside
resources used. You do not have to cite the sources on BlackBoard or Cargill on this exam (I will assume
you use them), but if you use any other articles do please cite them properly in MLA format.
Happy July 4th
.Part 1: Crime and the $100 Bill (10 Points)
Graphing (2 Points).
Rogoff argues that increased criminal activity leads to increased demand for large denomination
currency (the $100 bill) for anonymous “medium of exchange” transactions. By this sound economic
intuition the higher the value of crime in the economy, the higher the demand and presence of large
denomination currency.
Use the data from Appendix 1 to create two scatterplots. The first should relate the value of crime as %
GDP (the horizontal axis) and the value of the $100 bill as % GDP (the vertical axis) from the years 1995
to 2019. Do the same for the second, but this time relating the Federal Funds Rate determined by the
Fed (the horizontal axis) and the value of the $100 bill as % GDP (the vertical axis). Be sure you are
displaying the trendline and the goodness of fit (R
2
) as they will support your answer in the analysis
section. Each graph is worth 1 point.
Analysis (10 Points).
True or False (2 Points):
Rogoff’s conclusion that higher crime means higher use/presence of $100 bills is demonstrated clearly in
the data.
True or False (2 Points):
As the Federal Funds rate drops to 0%, there is a higher use/presence of $100 bills.
Essay (6 points):
Reread Cargill Chapter 2 and consider the uses of money, specifically the contrast between monetary
services as a “store of value” versus a “medium of exchange”. Who is using these large amounts of $100
bills and why are they using it? You may also want to check your Data Dashboard regarding the WRDS
assignment. Keep your answer to between 500 and 1000 words, double spaced, 12 point font. Part 2: Crime and Crypto (10 Points)
Graphing (2 Points).
Use the data in Appendix 2 to create a scatterplot relating the Value of Crime as % GDP (horizontal axis)
in the US, and the value of Bitcoin as % GDP (vertical axis). Be sure to include the goodness of fit and
trend equation in your graph. Again create another scatterplot comparing the Fed Funds Rate on the
horizontal axis and the value of Bitcoin as % of GDP on the vertical axis. You will have to use the data
from 2010 to 2019 due to availability issues. Each graph is worth one point.