Macroeconomics Answers

An open macroeconomic model for a hypothetical economy is represented as follows
Y= C0 +Io+Go+X0-M, M=mo+m1yd,C=co+c1yd, T=tY and Yd=Y-T
a. Show that equal change in tax and government expenditure are expansionary to the economy
b. Derive the equilibrium level of savings in the economy above
c. Derive the investment multiplier

If: Y = C + I where C = 120 + 0.8Y, I = 200 + 0.05i and Y = 1400,
Q1. Compute the equilibrium national income, consumption and investments
Q2. What is the size of government expenditure multiplier and savings ?

if: C = 120 + 0.8Y, I = 200 + 0.05i and Y = 1400, What is the size of government expenditure multiplier and savings?

Assume that the banking system is loaned up and that any open-market purchase by the Fed directly increases reserves in the banks. If the required reserve ratio is 0.2, by how much could the money supply expand if the Fed purchased $2 billion worth of bonds?

Explain why each of the following statements is True, False, or Uncertain according to economic principles. Use diagrams where appropriate.
An economy that is open to capital flows has two channels for the monetary transmission mechanism, while an economy closed to capital flows has only one. [Hint: Explain in the context of an increase in interest rates in both types of economies.]

Explain why each of the following statements is True, False, or Uncertain according to economic principles. Use diagrams where appropriate.
Because it is no longer backed by the potential for conversion to gold, modern Canadian fiat currency is no longer able to serve as a form of money.

Respond to the following question (one well composed paragraph for each question):

Suppose the Fed sells $5 million worth of bonds to Econobank.

What happens to the reserves of the bank?
What happens to the money supply in the economy as a whole if the reserve requirement is 10%, all payments are made by check, and there is no net drain into currency?
How would your answer in part b be affected if you knew that some people involved in the money creation process kept some of their funds as cash?

The rate of economic growth per capita in France from 1996 to 2000 was 1.9% per year, while in Korea over the same period it was 4.2%. Per capita real GDP was $28,900 in France in 2003, and $12,700 in Korea. Assume the growth rates for each country remain the same.
Compute the doubling time for France’s per capita real GDP.
Compute the doubling time for Korea’s per capita real GDP.
What will France’s per capita real GDP be in 2045?
What will Korea’s per capita real GDP be in 2045?

Suppose the consolidated balance sheet of an economy’s banking system is shown in the following table:
Assets: Liabilities:
Currency 10 Deposits 2000
Deposits at the central bank 90
Government Bonds 300
Loans Outstanding 1800 Capital 200
Total 2200 Total 2200
In answering the following questions, assume that the banking system is initially in equilibrium and that
the public holds all of its money in the form of deposits in the banking system.
(d) How would your answer to part (c) change if this banking system was subject a “minimum capital
requirement” (in particular, a regulation that requires that the banking system maintain a
Capital/Loan ratio of at least 10%)?

Suppose the consolidated balance sheet of an economy’s banking system is shown in the following table:
Assets: Liabilities:
Currency 10 Deposits 2000
Deposits at the central bank 90
Government Bonds 300
Loans Outstanding 1800 Capital 200
Total 2200 Total 2200
In answering the following questions, assume that the banking system is initially in equilibrium and that
the public holds all of its money in the form of deposits in the banking system.
(b) Suppose the central bank buys $50 worth of government bonds from the banking system. Show the effect of this transaction on the balance sheet before any new loans can be made, or any old loans are called. Is the banking system still in equilibrium? Has the money supply changed?