Question
1. Is GDP a good measure of economic well-being? (2 marks) 3. Draw a simple T-account for First National Bank of Me, which has $9000
1. Is GDP a good measure of economic well-being? (2 marks)
3. Draw a simple T-account for First National Bank of Me, which has $9000 of deposits, a reserve ratio of 10 percent, and excess reserves of $300. (3 marks)
4. Draw a firm's labour demand curve that intersects the vertical axis at $20 per hour, and choose a point on the curve corresponding to an hourly wage of $12 and employment of 50 workers.
a. Explain the significance of the labour demand curve, and show why such a curve is downward sloping.
b. At the employment level of 50 workers, what is the total amount the employer pays in wages?
c. At the employment level of 50 workers, what is the firm's profit? (Hint: At each level of employment, the labour demand curve shows the additional value of production created by hiring an extra worker.) (6 marks)
5. In the national income accounting identity showing the equality between national saving and investment, what is the representation of private saving and what is the representation of public saving? (5 marks)
6. A bank has $200 reserves, $800 loans, $400 securities, $1200 deposits, and $100 debt.
a) Calculate the bank's capital.
b) Calculate the bank's leverage ratio.
c) Suppose there is a stock market boom, so that the bank's assets increase by 2 percent. What is the percentage change in the bank's capital? What is the change in the bank's capital in dollars?
d) Suppose that, instead of stock market boom, some borrowers default on their debt so that the bank's assets decrease by 2 percent. How much is now the bank's capital? (5 marks)
7. In addition to investment in physical and human capital, what other public policies might a country adopt to increase productivity? (4 marks)
8. Explain why banks can influence the money supply if the required reserve ratio is less than 100 percent. (3 marks)
9. The purpose of this problem is to make you acquainted with Statistics Canada's website. Open http://www.statcan.gc.ca/start-debut-eng.html and look for "Real gross domestic product, expenditure-based, by province and territory." Answer the following questions based on this table.
a) Which three provinces had the greatest real GDP per capita in 2017?
b) Calculate the shares of each of these provinces in Canada's real GDP in 2017.
c) Now, look for another table "Inter-city indexes of price differentials in consumer goods and services." In which city was the consumer price index the highest in both of the years 2017 and 2018? Can you think of an explanation for that? (3 marks)
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