T chart of Canny bank Assets Liabilities Reserve: $10,000 Demand Deposit: $200,000 Government bonds: $300,000 Owners equity: $110,000 Laceland buys $50,000 of government from canny bank. (Money multiplier = 20) Maximum change caused by this is $1,000,000 change. (a)Based on this change above, Try to calculate the change in nominal gross domestic product based on the change above. (Use mv=py) (b) Assume the economy os Econland is initially at full employment, Does change ($1,000,000) increase, decrease, stay the same the real output in the long run? Explain.

T chart of Canny bank Assets Liabilities Reserve: $10,000 Demand Deposit: $200,000 Government bonds: $300,000 Owners equity: $110,000 Laceland buys $50,000 of government from canny bank. (Money multiplier = 20) Maximum change caused by this is $1,000,000 change. (a)Based on this change above, Try to calculate the change in nominal gross domestic product based on the change above. (Use mv=py) (b) Assume the economy os Econland is initially at full employment, Does change ($1,000,000) increase, decrease, stay the same the real output in the long run? Explain.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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7 8 The sale of a government security by the Central Bank increases the supply of money. decreases the demand for money. increases the demand for money. decreases the supply of money. When a bank accepts deposits from a customer, to the bank the deposits is classified as neither an asset nor a liability. a debt a liability an asset
Figure 3: Msl.Ms1 Interest Rate (%) 10% 8% 6% Md 100 200 Money (S million) 13. Refer to Figure 3. If the money supply increases from MSo to MS1: a) money demand must decrease for the money market to return to equilibrium. b) the interest rate will decrease to 6%. c) the interest rate will increase to 10%. d) the money market will return to equilibrium only if the money supply is reduced to its original level.
Figure 1: Ms Interest Rate (%) 5% Md 150 Money ($ million) 9. Refer to Figure 1. At an interest rate of 4%, there is a: a) excess demand for money and the interest rate will decline. b) excess demand for money and the interest rate will rise. c) excess supply of money and the interest rate will decline. d) excess supply of money and the interest rate will rise.
4. National savings (S) is the sum of public and private savings and is equal to thefollowing equation:a. (Y - T - C) - (T - G)b. Y - C - Gc. (Y - T - C) - (T + G)d. Y - T - C
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Bureau of Economic Analysis Table 1.1.6. Real Gross Domestic Product, Chained Dollars [Billions of chained (2012) dollars] Seasonally adjusted at annual rates Last Revised On: Mar 26 2020 8:30AM-Next Release Date: Apr 29 2020 8:30AM Line 123 4 S 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 Gross domestic product Personal consumption expenditures Goods Durable goods Nondurable goods Services Gross private domestic investment Fixed investment Nonresidential Structures Equipment Intellectual property products Residential Change in private inventories Net exports of goods and services Exports Goods Services Imports Goods Services Government consumption expenditures and gross investment Federal National defense Nondefense State and local Residual 2018 18,638.2 12,944.6 4,583.3 1,685.7 2,909.6 8,388.1 3,360.5 3,293.4 2,692.3 540.9 1,255.3 901.6 602.9 48.1 -920.0 2,532.9 1,782.8 755.4 3,453.0 2,916.1 539.9 3,223.9 1,232.2 737.5 494.2 1,990.0 2.1 2019 19,073.1 13,280.1 4,754.6…
2. Consider an economy in which banks are subject to a 5 percent reserve requirement. Assume that banks lend as much as they legally can. (a) What is the money multiplier in this case? (5%) (b) Suppose that Avraam deposits $1,000 in the bank. How much money is created? (5%) 'https://youtu.be/iFDe5kUUyTO
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4. When you pay $60 for the pizza you ordered for dinner, you are using money as a (an): unit of account. medium of exchange. store of value. investment good.
Figure: Supply of Loanable Funds) Use Figure: Supply of Loanable Funds. When the interest rate rises from 6% to 8%, the: Interest -ate (%) 12 10 8 6 4 2 S 0 10 20 30 40 50 60 70 80 90 Loanable funds (billions of dollars) O quantity of loanable funds supplied falls by $20 billion. supply of loanable funds falls by $10 billion... quantity of loanable funds supplied rises by $20 billion. O supply of loanable funds rises by $20 billion.
5. Suppose the Bank of England (the UK's Central Bank) determines the reserve rate (rr) to be 15% and all banks should follow this rate when lending. (a) Using the fractional-reserve banking theory, calculate how much credit can be created in the UK economy if the initial loan is £300,000 and all created loans are deposited in another bank account and the number of banks involved in this process goes to infinity. (Show all your calculations) (b) Heterodox economists believe that while the theory of fractional-reserve banking brings the creation of credit by banks into the discussion of money supply, the theory suffers from the fact that the money supply is still exogenous. Explain this view through the relation between money supply (M) and the monetary base (H) discussed in the lecture.