1. Your best friend, who happens to be a bank manager in Colorado Springs, tells you that she does not increase the money supply by creating new money; her bank simply just lends what is deposited. Do you agree with your best friend? If you disagree, explain why she is wrong and how she creates money. Nominal Nominal Wage Rate Interest Rate Year CPI (S 2010 100 15 3 2011 95 15 2012 103 17 2. The table above has information about the Consumer Price Index (CPI), nominal wage rate, and nominal interest rate for Colorado Springs for the years 2010 to 2012. The reference base year is 2010. a. Is there deflation? If yes, in what year does it occur? b. Calculate the real wage rate in 2011 c. Calculate the real interest rate in 2012 3. A bank has reserves of $50, deposits of $100, loans of $20, and government securities of $30. Assume the desired reserve ratio is 20 percent. a. How much does the bank have in excess reserves? b. What can the bank do with its excess reserves that will affect the quantity of money? 4. Go to the Federal Reserve Economic Database (FRED) website (https://fred.stlouisfed.org) and look up annual data for Gross Domestic Product (GDP) for Singapore (MKTGDPSGAG46NWDB) and Vietnam (MKTGDPVNA646NWDB) during the period 1985-01-01 to 2018-01-01. These measures are calculated in current U.S. Dollars and are not seasonally adjusted. Overlay the GDP data for both coun- tries in the same graph and include it as part of your submission. Look up annual data for Investment as a share of GDP for Singapore (KIPPPGSGA156NUPN) and Vietnam (CIPPPGVNA156NUPN) during the period 1970-01-01 to 2010-01-01. Overlay the investment data for both countries in the same graph and include it as part of your submission. a. Based on the graphs you constructed, which country has higher GDP? What accounts for the differences in the growth of GDP between Vietnam and Singapore based on the theory of coonomic growth?5. Go to the Federal Reserve Economic Database (FRED) website (https://fred stlouisfed.org) and look up annual data for MI (MANMMI01USA6575) and the Federal Funds Rate (FEDFUNDS) during the period 1995-01-01 to 2017-10-01. The units for MI is the "Growth Rate Previous Period" and for the Federal Funds Rate is "Percent". Overlay the data for both series in the same graph and include it in your submission. a. In the graph you constructed, what do you observe about the relationship between the money supply and interest rates. b. Explain what what the Federal Reserve can do to raise interest rates. 6. Use the table, which shows a bank's balance sheet, to solve the following problem. The desired reserve ratio on all deposits is 5 percent and there is no currency drain. Assets Liabilities (millions of dollars) Reserves at the Fed 25 Checkable deposits 90 Cash in vault 15 Savings deposits 110 Securities Loans 100 a. Calculate the bank's excess reserves. If the bank uses all of the excess reserves to make a loan, what is the quantity of the loan and the quantity of total deposits after the bank has made the loan? 7. Explain the effect of the Fed's action that increases the quantity of money on the macroeconomic equilibrium in the short run. Use the aggregate supply aggregate demand graph to illustrate the effects on real GDP and the price level. Explain the adjustment process that returns the economy to full employment (be precise in labeling the axes and curves). 8. Use an aggregate supply aggregate demand graph to illustrate the effects on real GDP and the price level of a fiscal stimulus when the economy is in recession (be precise in labeling the axes and curves). 9. With a large and growing deficit, the Federal Reserve (FED) may face pressure from the federal government to enact monetary policy. What monetary policy would the federal government want the FED to enact in response to an increase in government debt? What is the tradeoff of this monetary policy?10. Go to the Federal Reserve Economic Database (FRED) website (https://fred.stlouisfed.org) and look up data for quarterly real GDP (GDPCI) and quarterly real Potential GDP (GDPPOT) during the period 2000-01-01 to 2016-10-01. Complete the following table: % Change % Change % Change Series 2000/01/01 to 2008/01/01 to 2010/01/01 to 2007/10/01 2009/10/01 2016/10/01 real GDP (GDPCI) real Potential GDP (GDPPOT) a. Create a graph that overlays both quarterly real GDP and quarterly real Potential GDP during the period 2000-01-01 to 2016-10-01. Compare this graph with the graph on the last page of the problem set, which displays the quarterly civilian unemployment rate and quarterly natural unemployment rate during the period 2000-01-01 to 2016-10-01. Explain what you observe.FRED