1o) If the Fed sells government securities, then there is Blan ncrease in the su

Question

1o) If the Fed sells government securities, then there is Blan ncrease in the supply of money. d) a decrease in the discount rate. D) an increase in the required reserve ratio. 3. SHORT ANSWERS (20 marks) Fruitgie is a small farmland nation with a simple economy that produces only three goods: grapes, mangosteens, and durians. 2014 2015 2016 Product Grapes Mangosteens Durians Quantity Price Quantity Price Quantity Price 700 550 300 $6.50 5.40 5.00 700 650 300 $7.00 5.70 5.50 750 650 220 $7.20 S.70 5.60 a) Use the production and price information in the table to calculate nominal GDP for 2015. b) Use the production and price information in the table to calculate real GDP for 2015, using 2014 as the base year. PART II. DISCUSSION QUESTIONS (40 marks) 1) The Norwegian economy can be characterized by the following equation, Refer to the following equation and answer the questions below C 100+0.4Yd G 600 T 200 400 a) The equilibrium level of output for the Norwegian economy is b) At the equilibrium level of output in Norway, consumption equals c) At the equilibrium level of output in Norway, saving equals 2) Refer to the information provided in Scenario below to answer the following questions: SCENARIO: The following table shows the changes in deposits, reserves, and loans of 4 banks as a result of a $100,000 initial deposit in Bank No. 1. Assume all banks are loaned up. New Deposit Required Reserve Loans $10,000.00 Bank No. 1 Bank No. 2 Bank No. 3 Bank No.4 $81,000.00 9000.00 $8,100.00 $90,000.00 $81,000.00 $72,900.00 $65,610.00 $90,000.00 $72, 900.00 $7,290.00 a) What is the required reserve ratio? b) What is the money multiplier in this economy? Special Assessment

Explanation / Answer

Question 10) When Fed sells government securities, there is reduction in money circulation and so there is a decrease in money supply. Option B

3) a) Nominal GDP 2015 = 700*7 + 650*5.70 + 300*5.50 = $10,255

b) Real GDP 2015 = 700*6.50 + 650*5.40 + 300*5 = $9,560

1) a) At equilibrium, C + I + G + NX = Y

100 + 0.4*(Y – 200) + 600 + 400 = Y

1100 + 0.4Y – 80 = Y

1020 = 0.6Y

Y = 1700.

b) Consumption = 100 + 0.4*(1700 – 200) = 700

c) Saving = (T – G) + (Y – T – C) = I

Saving = 200 – 600 + 1700 – 200 – 700 = 400 = I

Hence S = I = 400.

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