Question;ECO 3203 Review for Final Exam (Chapters 9, 10, 14);Chapter 9;1.;Define: Bank Assets;liabilities, Capital, Capital Ratio and Leverage Ratio. If a bank?s Assets are;200 and Liabilities are 60 what is the capital of this Bank? What is the;Capital Ratio? What is the leverage ratio?;2.;Define insolvency and;illiquidity. Explain how these terms relate to the crisis in the 2000s.;3.;What was done to the Federal;Deposit Insurance to assist with the recovery? (be specific);4.;Explain what is meant by the;liquidity trap. Also discuss the implications of a liquidity trap for the;shapes of the money demand and LM curves.;5.;Suppose a liquidity trap;exists. Graphically illustrate and explain the effects of an increase in;government spending using the IS-LM model.;6.;Suppose a liquidity trap;exists. Graphically illustrate and explain the effects of an increase in money;supply using the IS-LM model.;7.;Suppose a liquidity trap exists;and output is below its natural level. Graphically illustrate and explain if;the economy can return to its natural level using the AS-AD model.;Chapter 10;1.;When assuming that there are;two inputs, capital and labor, what is the new aggregate production function?;2.;Show an example of constant;returns to scale in the aggregate production function.;3.;Suppose the capital;stock increases by 10% and the number of employed workers increases by 5%.;Given this information, explain what will happen to output and to output per;worker.;4.;Define: decreasing returns to;capital and decreasing returns to labor. Give an example or each.;5.;What is the relationship;between output per worker and capital per worker? Show this relationship;graphically. Explain why the curve may be steeper or flatter at certain points.;What happens to this curve as technology improves? What is the effect of this;on output per worker if capital per worker is held constant?;6.;What does sustained growth;require?;7.;Question 3, page 222 in the;book.;8.;Consider the production function, Y=, write the production function as a relation between output;per worker and capital per worker.;9.;Consider the production;function, Y=;a. Compute output when K=81 and N=100.;b. Is this production function characterized by constant;returns to scale? Explain.;Chapter 14;1.;Explain what the Fisher;effect/Fisher hypothesis represents.;2.;Explain in great detail;what effect expansionary monetary policy will have on the output, nominal;interest rate and real interest rate in the short run and in the medium run if;at the initial point of equilibrium output is at its natural level of output.;Explain and show graphically using the IS and LM curves as well as a curve;showing the interest rates across time.;3.;What is meant by the;natural real interest rate."?;4.;What are the determinants;of the nominal interest rate in the medium run? Based on your answer, to what;extent can monetary policy affect the nominal interest rate in the medium run?;Briefly explain.;5.;To reduce the nominal;interest rate in the short run, what type of policy should the central bank;pursue? Explain.;6.;Using the IS-LM model;graphically illustrate and explain what effect a reduction in money growth will;have on output, the nominal interest rate, and the real interest rate in the;short run.
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