A clear and detailed explanation

1. Assume that the country of Rankinland is currently in recession. (a) Assume that Rankinland produces only food and clothing. Draw a correctly labeled production possibilities curve for Rankinland. Show a point that could represent the current output combination and label it A. (b) Assume that the Central Bank of Rankinland pursues an expansionary monetary policy. (i) Identify the open-market operation that the Central Bank would use. (ii) Draw a correctly labeled money market graph and show the short-run effect of the expansionary monetary policy on the nominal interest rate. (iii) Assuming no change to the price level, what happens to the real interest rate as a result of the expansionary monetary policy? Explain. (iv) Given your answer to part (b)(iii) regarding the real interest rate, what happens to the real gross domestic product (GDP) in the short run? Explain. (c) Suppose Rankinland has a current account deficit. Rankinland's currency is called the bera. (i) What will initially happen to the current account deficit in Rankinland solely due to the change in the real GDP from part (b)(iv) ? Explain. (ii) What will happen to the international value of the bera solely due to the change in the real GDP from part (b)(iv) ? Explain.1. Assume that the country of Rankinland is currently in recession. (a) Assume that Rankinland produces only food and clothing. Draw a correctly labeled production possibilities curve for Rankinland. Show a point that could represent the current output combination and label it A. (b) Assume that the Central Bank of Rankinland pursues an expansionary monetary policy. (i) Identify the open-market operation that the Central Bank would use. (ii) Draw a correctly labeled money market graph and show the short-run effect of the expansionary monetary policy on the nominal interest rate. (iii) Assuming no change to the price level, what happens to the real interest rate as a result of the expansionary monetary policy? Explain. (iv) Given your answer to part (b)(iii) regarding the real interest rate, what happens to the real gross domestic product (GDP) in the short run? Explain. (c) Suppose Rankinland has a current account deficit. Rankinland's currency is called the bera. (i) What will initially happen to the current account deficit in Rankinland solely due to the change in the real GDP from part (b)(iv) ? Explain. (ii) What will happen to the international value of the bera solely due to the change in the real GDP from part (b)(iv) ? Explain.2. The following is a simplified balance sheet for Mi Tierra Bank in the United States. Mi Tierra Bank Assets Liabilities Required reserves $10,000 Demand deposits $100,000 Excess reserves $5,000 Loans $85,000 Owner's equity $0 (a) What is the reserve requirement? (b) Assume that Luis withdraws $5,000 in cash from his checking account at Mi Tierra Bank. (i) By how much will Mi Tierra Bank's reserves change based on Luis' withdrawal? (ii) What is the initial effect of the withdrawal on the M1 measure of money supply? Explain. (iii) As a result of the withdrawal, what is the new value of excess reserves on the balance sheet of Mi Tierra Bank based on the reserve requirement from part (a) ? (c) Assume that the next day John withdraws from Mi Tierra Bank an amount that exceeds the bank's excess reserves. Assuming that no loans are called in, how can Mi Tierra Bank cover its required reserves?36. A country can have an increased surplus in its 41. The consumer price index (CPI) is designed to balance of trade as a result of measure changes in the (A) an increase in domestic inflation (A) spending patterns of urban consumers only (B) declining imports and rising exports B) spending patterns of all consumers (C) higher tariffs imposed by its trading partners C) wholesale price of manufactured goods (D) an increase in capital inflow (D) prices of all goods and services produced in (E) an appreciating currency an economy (E) cost of a select market basket of goods and 37. Policies intended to reduce demand-pull inflation services are most likely to increase which of the following in the short run? 42. A barter economy is different from a money (A) Gross domestic product economy in that a barter economy (B) The labor force participation rate (A) encourages specialization and division of C) The price level labor (D) Unemployment (B) involves higher costs for each transaction (E) Wage levels (C) eliminates the need for a double coincidence of wants 38. An increase in the government budget deficit is D) has only a few assets that serve as a medium most likely to result in an increase in which of the of exchange following? (E) promotes market exchanges (A) The marginal propensity to consume 43. In the short run, which of the following would (B) Exports (C) The real interest rate occur to bond prices and interest rates if a central (D) The money supply bank bought bonds through open-market operations? (E) The simple multiplier Bond Prices Interest Rates 39. An increase in which of the following would be most likely to increase long-run growth? (A) No change Increase (B) Increase Increase (A) Pension payments (C) Increase Decrease (B) Unemployment compensations (D) Decrease Increase (C) Subsidies to businesses for purchases of (E) Decrease Decrease capital goods (D) Tariffs on imported capital goods 44. Suppose that in an economy with lump-sum taxes E) Tariffs on imported oil and no international trade, autonomous invest- ment spending increases by $2 million. If the 40. A commercial bank's ability to create money marginal propensity to consume is 0.75, equi- depends on which of the following? librium gross domestic product will change by a (A) The existence of a central bank maximum of (B) A fractional reserve banking system (A) $0.5 million (C) Gold or silver reserves backing up the (B) $1.5 million currency C) $2.0 million (D) A large national debt D) $8.0 million E) The existence of both checking accounts (E) $15.0 million and savings accounts46. Assume that the required reserve ratio is X 10 percent, banks keep no excess reserves, and borrowers deposit all loans made by banks. CAPITAL GOODS Suppose you have saved $100 in cash at home and decide to deposit it in your checking account. As a result of your deposit, the money supply can increase by a maximum of (A) $800 . Z (B) $900 (C) $1,000 D) $1,100 W (E) $1,200 CONSUMPTION GOODS 47. Which of the following would be the initial 45. The diagram above shows the production possi- impact on an economy if wages were to increase bilities curve for an economy that produces more than worker productivity? only consumption and capital goods. All of (A) There would be no initial impact, since the following statements about this economy neither the aggregate supply curve nor the are true EXCEPT: aggregate demand curve would shift. (A) Producing at point Z results in the (B) Employment would increase, causing a underutilization of resources. rightward shift in the aggregate demand B) The combination represented by point Y is curve. unattainable, given the scarcity of resources. (C) The price level would increase, resulting in (C) Resources are fully utilized at points W excess aggregate supply. and X. (D) The short-run aggregate supply curve would (D) Producing at point X will result in greater shift to the left, increasing the price level. economic growth than will producing at (E) The aggregate demand curve would shift to point W. the left, increasing the price level. (E) Point X represents the most efficient combination of the two goods that can 48. Under a flexible exchange-rate system, the Indian be produced by this economy. rupee will appreciate against the Japanese yen when (A) India's inflation rate exceeds Japan's (B) India has a trade deficit with Japan C) Japan's economy enters a recession, but India's does not (D) Japan's money supply decreases while India's money supply increases (E) real interest rates in India increase relative to those in Japan49. Which of the following occurs as investment 52. One explanation for the downward slope of the becomes more responsive to changes in the aggregate demand curve is that when the price interest rate? level increases, which of the following will (A) Monetary policy becomes more effective at decrease? changing real gross domestic product. (A) Real value of assets (B) Fiscal policy becomes more effective at (B) Prices of foreign goods changing real gross domestic product. C) Prices of substitute goods (C) Monetary policy becomes more effective at (D) Expectations of future prices changing interest rates. E) Government deficit (D) Fiscal policy becomes more effective at changing interest rates. 53. Which of the following is true about changes in E) There is no change in the effectiveness of tax rates, changes in the level of government either monetary or fiscal policy. expenditures, and changes in the money supply? 50. If two nations specialize according to the law of (A) They are automatic stabilizers. (B) They are tools of discretionary fiscal policy. comparative advantage and then trade with each other, which of the following would be true? C) They have different lag times between implementation of a policy and its effects (A) A smaller number of goods would be avail- on aggregate demand. able in each trading nation. (D) They are favored equally by both classical (B) Total world production of goods would and Keynesian economists to fine-tune the decrease. economy . (C) Everyone within each nation would be (E) All are controlled by the Federal Reserve better off. system. (D) Each nation would increase its consumption possibilities. 54. An increase in which of the following would (E) One nation would gain at the expense of the LEAST likely increase labor productivity? other nation. (A) Physical capital 51. The shifting of a country's production possibile (B) Human capital ities curve to the right will most likely cause C) Technological improvements D) Educational achievement (A) net exports to decline E) The labor force (B) inflation to increase (C) the aggregate demand curve to shift to the left 55. Tariffs are different from assigned import quotas (D) the long-run aggregate supply curve to shift in that tariffs will to the left E) the long-run aggregate supply curve to shift to (A) restrict imports the right B) increase the price of imported goods C) benefit domestic consumers of imported goods "D) hurt domestic producers of goods facing import competition (E) generate additional revenue for the domestic government