Fall 2014 Prof. Yankey ECCMacroeconomics Final Exam

Please show all work, calculations and box your final numerical answers. Draw all charts and graphs. Label all graphs fully and use color. Give numerical answers in the proper units. Explain your answers in your own words, and remember to put them in essay form. Cite all references. This must be typed, graphs/charts may be done by hand.

1. a. The following data is for the Obsidian Banking system, whose slogan is; Money: dont loan today, what you might "reserve tomorrow! Use the following data to set up a balance sheet; Securities = $50,000, Demand Deposits = $250,000, Loans = $90,000, Reserves =$80,000, Capital stock = $100,000 Property = $130,000. Assuming that the reserve ratio is 25%, use the data to answer the following questions. (All figures are in billions)

i. What is the amount of excess reserves in this banking system?What is the maximum amount that the money supply can be expanded? (6pts)ii. If the reserve ratio fell to 15%, what would be the maximum amount that the money supply can now expand? (4pts.)iii. Assume that the original data was for a single commercial bank, which makes a loan of $25,000 and has a check cleared against it for the amount of the loan; what will be the amounts of its reserves and demand deposits? Using two separate balance sheets show the changes before and after the transaction. (8pts.)iv. Using the original balance sheet (and a reserve ratio of 15%), assume that the firm now makes a loan for $20,000 and has a check cleared against it for the amount of the loan; what will be the amount of its excess reserves? (6pts.)

b. The following data was compiled by the Samantha/Alana/Marina of Its All About Dah Bass Consulting. Columns 2 and 5 are the AS schedule, while columns 4 and 5 are the AD schedule. (6pts. each) (1) (2) (3) (4) (5)Price LevelReal GDP AD1 AD2 Real GDP2 220$2390$2100$2200 $2490 200 2390 2200 2340 2490 190 2350 2250 2350 2450 180 2300 2300 2400 2400160 2200 2400 2500 2300i. What is the equilibrium real GDP and the price level? Suppose that the AD is now at column 4; what will be the new equilibrium price level and real GDP? Draw a graph showing the two changes.ii. Now assume that AS is now at column 5, while AD stays at column 4, what will be the new price level and real GDP? Draw a graph showing the new results.

3. Given the following data, from the It WasN Me Financial (founded by Patrice and Jacob), answer the questions. (Show work.)

Interest rate (%)Asset demand13 $20012 30011 400 10 5001. If the transaction demand for money equals 15% of nominal GDP, the nominal GDP is $5000 billion, and the supply of money is $1050 billion, what is the equilibrium interest rate? (6pts.)

1. Calculate the total demand for money at each interest rate. Be sure to show work and the corresponding interest rates. (4pts.)

1. If the nominal GDP remains constant, and the money supply is increased to $1250 billion, what will be the equilibrium rate of interest? (4pts.)

4. The data below was compiled by the Jose and Ana G. of Whoa Pah GunDamstyl Research Group, showing the supply and demand schedules for health care. QuantityQuantityPrice ($)DemandedSupplied10,000 4001200 9,000 500 1100 8,000 600 1000 7,000 700 900 6,000 800 800 5,000 900 700 4,000 1000 600 3,000 1100 500

i) Assume that there is no health insurance in this market. What will be the equilibrium price and quantity in this market? (4pts.)

ii) Now assume that health insurance cuts the price of health care by half (1/2) for the consumer. What will be the new price for the consumer and the quantity demanded? (4pts.)iii) Draw the graph showing the equilibrium price and quantity when there is no health insurance. (6pts.)

iv) Suppose that a government subsidy causes the supply of health care to shift by 200 at every price, what would be the new equilibrium price and quantity in the absence of health insurance? Show work draw a new graph showing the changes. (6pts.)

v) What are some of the problems/criticisms associated with Fiscal policy? Discuss the problems of timing and one other. (6pts.)

5. a. The table below was compiled by the Federal Reserve Bank chairperson, Danielle , (aka No Shift!). Columns 3 to 5 show the supply of money. Dm represents the demand for money. (All figures are in millions.)

(1) (2) (3) (4) (5)Interest rate Dm Sm1 Sm2 Sm3__12%$1,600$2,300$2,600$1,90010 1,900 2,300 2,600 1,900 8 2,300 2,300 2,600 1,900 6 2,600 2,300 2,600 1,900 4 2,900 2,300 2,600 1,900

i. Using the data from the table draw the graph. (4pts)

ii. Given the demand for money, what will be the equilibrium interest rate for each of the different supply of money schedules? You must give the supply of money as well as the interest rates. (6pts)

iii. Assume the economy was in equilibrium at Dm and Sm1. If Nesrine decides to change the money supply to Sm2, and the interest rate stays the same, how much of a shortage or surplus in the money supply will there be? (6pts)

b. International spies; Marcia, Rocio and Sheidy of MANYOSA Inc., were engaged in a debate over the merits of trade barrier arguments. Help them resolve their dilemma by discussing any four arguments for imposing trade barriers. (I.e. Quotas, etc.) (8pts.)

6.Jocelyn and Walter, of E-Ho-Lay Fiduciaries, were called upon to be an advisor to the Mejicanos Administration. As part of their first assignment, they had to:

a. Arrange the following items in the form of a commercial banks balance sheet, and explain how each might come into being. Capital stock=$300,000, Reserves=$60,000, Property=$290,000, Checkable deposits=$150,000, Loans=$60,000, and Securities=$40,000.

b. Assume the balance sheet from a was for the Ikou/Hedde Bank, whose slogan is Banking Aint Nothing but a G-Thang! Use the data to answer the following. (Assume the reserve ratio is 30%)

i. What is the amount of excess reserves and by what amount can the Ikou/Hedde Bank safely expand its loans?(8pts.)

ii. If the bank expands its loan by the amount in (i), its demand deposits would expand to what amount (if all loans were made to checking account customers)? (8pts.)

c. What are the four principle tools of monetary policy? Briefly discuss each one. Explain the two main advantages of monetary policy over discretionary fiscal policy. (10pts.)

d. Given the following economic problems, what steps would be taken under discretionary fiscal policy and monetary policy to alleviate them? (Explain each briefly.) (10pts.)i. Recessionii. Inflation

What grade do you believe that you have earned in this course? Explain in two sentences and put your name at the end. No fantasy grades, please.