Macroeconomics Answers

Which of the following would not be considered a conventional monetary policy by the Fed:
(a) selling T-Bills
(b) purchasing Mortgage Bonds
(c) lowering the discount rate
(d) changing the reserve requirement

20 points. Suppose the Fed's target for the federal funds rate moves from 0.5% (current value) to
2%. Using the appropriate graphs carefully explain:
(a) How can the Fed attain such increase in the FFR? HINT: you have to use the graph for the
(interbank) market of reserves
b) What is the impact of such change on total spending in the economy? HINT: you have to use the graph with the total expenditure and the 45 degree line.
c) What is the impact on equilibrium output Y and the price P? HINT: you have to use the AD-AS graph

Consider a bank where total loans are equal to $800 million and required reserves are $40
million, and where the reserve requirement is 10%.

a) Fill the bank's balance sheet, assuming that it does not hold excess reserves
b) Write the formula for the money multiplier and compute its value. How does it depend on the
reserve ratio? Negatively or positively?
c) Suppose that the Fed injects $80 billion of new reserves into the banking system. Given the
money multiplier computed in b., how large would be the total change in money supply in the
whole banking system?

For given increase in the supply of reserves to banks by the Fed, the drop in the federal funds rate
(FFR)
(a) is larger the more sensitive to the FFR the demand for reserves (by banks) is
(b) is larger the less sensitive to the FFR the demand for reserves (by banks) is
(c) does not depend on how sensitive to the FFR the demand for reserves (by banks) is
(d) is equal to the total change in the supply of reserves

You have been hired as an economic consultant to assess the potential of profitably entering the
market for gourmet coffee (examples are Starbucks and Coffee Bean). The firm that has hired you
would like for you to make your recommendations on what are the most important factors that
must be considered in order to successfully penetrate the market. The firm also wants your advice
(in addition to production of the coffee itself) on its interest in opening several distribution or sales
points. It would like to have your recommendation on the factors that would be most beneficial to
determining the correct location and size for the outlets.
Determine and discuss the most probable market structure of the coffee industry; then prepare a
proposal which will be presented to the firm that is hiring you as consultant.

Calculate GDP using the expenditure approach by adding up the data in the left set of the column.

Suppose that the economy is in recession with a recessionary gap of $1 trillion. The MPC is 0.9 and the tax rate on income is 30%. Answer the following
(a) Compute the value of the multiplier.
(b) Suppose the AS curve is completely flat. What would be the change in G needed to make the gap equal to zero?
(c) Would the change in G you found in b. be enough if the AS curve was positively sloped? Explain using the appropriate graph.

Explain how each of the following transactions enters the Nigerian balance of
payments accounts. Indicate the specific component of the BOP account that is
affected by each transaction. Discuss only the transactions described. Do not be
concerned with possible offsetting transactions.
a) The Nigerian government sells 20m barrels of oil to Ghana.
b) The Central Bank of Nigeria sells dollars to and buys Niara from the US
Federal Reserve.
c) Guaranty Trust Bank Plc (Nigeria) receives interest on loans it has made to
Ghanaian companies.
d) A Nigerian Bank borrows from a Ghanaian bank.
e) A Nigerian oil company buys insurance from a British insurance company to
insure its oil rigs in the Niger Delta

What is gdp

The Index of Sustainable Economic Welfare (ISEW) have been proposed as an alternative to a country’s Gross National Product (GNP) or Gross Domestic Product (GDP). What is the effect of using that measure on calculations of economic growth over the last 20 years?