1. Consider the following balance sheet for a hypothetical bank. All values are in millions of Canadian dollars

Assets Liabilities Bonds 500 Deposits 480 Equity 20 Total 500 Total 500

a) Calculate the leverage ratio for the bank b) Calculate the capital ratio for the bank c) Suppose that an increase in the rate of interest decreased the value of assets by 3%. Show how the leverage ratio and capital ratio would changes as a result. Has the risk of insolvency decreased or increased? 2. Can an improvement in technology raise the welfare (total utility) of a producer-consumer firm in the absence of borrowing and lending? Justify your answer. Use an appropriate diagram (s) to illustrate. 3. State the Baumol-Tobin demand for money equation. Calculate the demand for money if the transaction cost (b) is 18, nominal income level is 2500, and the rate of interest is 16%.