#### Description of this paper

##### Suppose that the money supply is currently \$500 billion

Description

solution

Question

1. Suppose that the money supply is currently \$500 billion and Fed wishes to increase it by \$100 billion. Given a reserve ratio of 0.25 what should it do?;2. Determine the impact on each of the following if 2 million formerly unemployed workers decide to return to school full time and stop looking for work;a. The labor force participation rate;b. The size of labor force;c. The unemployment rate;3. Suppose that the U.S. non institutional adult population is 230 million and the labor force participation rate is 67%.;a. What would be the size of the U.S. labor force?;b. If 85 million adults are not working, what is the unemployment rate?;4. Explain how each of the following changes the money supply.;a. the Fed buys bonds;b. the Fed raises the discount rate;c. the Fed raises the reserve requirement;5. Draw a simple T-account for First National Bank which has \$5,000 of deposits, a required reserve ratio of 10 percent, and excess reserves of \$300. Make sure you balance sheet balances.;6. Suppose a country the total holdings of banks were as follows;Required reserves = \$45 million;Excess reserves = \$15 million;Deposits = \$750 million;Loans = \$600 million;Treasury bonds = \$90 million;Show that the balance sheet balances if these are the only assets and liabilities.;Assuming that people hold no currency, what happens to each of these values if the central bank changes the reserve requirement ratio to 3%, banks still want to hold the same percentage of excess reserves, and banks don? change their holdings of Treasury bonds? How much does the money supply change by?;7. Suppose that there is an excess supply of economics professors. Should universities necessarily reduce salaries? What does standard economic theory suggest? What does efficiency-wage theory suggest?;9. Following the recession of 2001 there was a month where employment and the unemployment rate rose. Assuming the computations were correct how is it possible for both to have increased?;10. Demonstrate that whether you would prefer to have \$225 today or wait five years for \$300 depends on the interest rate. Show your work.;11. As the interest rate increases, what happens to the present value of a future payment? Explain why changes in the interest rate will lead to changes in the quantity of loan able funds demanded and investment spending.;12. Lucy puts \$400 into an account when the interest rate is 10 percent. Later she checks her balance and finds its worth about \$708.62. How many years did she wait to check her balance?

Paper#27491 | Written in 18-Jul-2015

Price : \$22