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a. Suppose that the interest rate on reserves is 1 percentage point below market rates. Would banks still desire to minimize excess reserves? Would this affect the bank money equation in Summary point 8 above?
b. Suppose that the interest rate on reserves is equal to the market rate. How would your answer to achange?
c. Using your answer to b, can you see why the relationship between reserves and bank money becomes very loose when market interest rates are
zero (the à ¢ liquidity trapà ¢ )?
1.Using examples, explain the three motives of people's demand for money.
2. Illustrate a downward shift in the IS curve . Describe three factors that could shift the IS curve.
3) a. What is the money multiplier ?
b. How do we derive the money multiplier?
c. What is the magnitude in money multiplier ?
d. What account for this magnitude?
Y =C +I+G+X. (income multiplier )
C= 100 + 0.8 Yd (consumption)
I= 200- 600r (investment)
X= 300-0.22Y -400r (Net Exports)
With government spending G = 400, the tax rate t = 0.15, Note that Yd = Y -tY
a) Derive the is curve
b) If r= 20 %. What is the level of income when spending balance occur?
c) What is the multiplier ?
d) Suppose that government spending increases to 700.What is the new level of income ? What is the change in income
C= 145 + 0.67 Yd where Yd is disposable income.
a. Interpret what the figures 145 and 0.67 imply in the consumption equation.
b. What is the associated saving functions? What do the intercept and slope mean?
c. Sketch the savings and the associated consumption function.
d. Compute the level of consumption if income Yd is GHS 200.
Explain and show graphically, what happens to the equilibrium price and quantity if a flood destroys much of the water melon crop in Belize and, at the same time, consumer tastes shift toward water melon juice. What would we expect to happen to the equilibrium price and quantity in the market for water melon juice?
Explore 05 yearly data of the following indicators with respect to Pakistan in graphical as well as tabular form, summarize the 05-year economic performance of Pakistan with the help of your data also elaborate the reasons for ups and downs in these factors.
MINIMUM MARKS: 20
a) Gross Domestic Product (GDP)
b) Gross National Product (GNP)
c) Net National Product (NNP)
d) Net Domestic Product (NDP) e) National Income (NI)
f) Personal Income (PI)
g) Disposable Personal Income (DPI)
