Answer all of the following questions completely

DEPOSIT CREATION BY DEPOSITORY INSTITUTIONS INCREASE THE MONEY SUPPLY (36 Marks) The T-Accounts in this table show how a $8,500 Ms. Aby deposited in her account at Bank A changed the Bank's balance sheet and, subsequently, the balance sheets of other depository institutions. Assume that all depository institutions keep 11 percent target desired) reserve ratio (i.e. v = 0.11) and quickly loan out excess reserves (i.e. keep zero excess reserves), and the public does not hold part of their deposits in cash (i.e. no cash drain). Calculate your answers to the nearest dollar. BANK A Assets Liabilities Reserves: 8,500 sits: 8,500 Loans: 0 Note: When your answers include decimals, round to three (3) decimal places. Do not include dollar signs or commas separating thousands Part 1: Assume that Bank A lends its excess reserves to Mr. Jones. Show Bank A's new balance sheet BANK A Assets Liabilities a) Reserves |Number b) Deposits Number c) Loans Number Part 2: Suppose Mr. Jones spend all the money borrowed, and his creditor(s) deposit their revenues at Bank B. Bank Blends its excess reserves to Ms. Davis. Show Bank B's balance sheet after the loan has been made out. BANK B Assets Liabilities a) Reserves Number b) Deposits Number c) Loans Number Part 3: Suppose Ms. Davis spends all the money borrowed, and her creditor(s) deposit thier revenues at Bank C. Bank C lends its excess reserves to Mr. Watson. Show Bank C's balance sheet after the loan has been made out. BANK C Assets Liabilities a) Reserves Number b) Deposits Number c) Loans Number Part 4: Mr. Watson spends all the money he borrowed, and his creditor(s) deposit their revenues at Bank D. Bank D lends its excess reserves to Ms. Gresham. Show Bank D's balance sheet after the loan has been made out.Part 4: Mr. Watson spends all the money he borrowed, and his creditor(s) deposit their revenues at Bank D. Bank D lends its excess reserves to Ms. Gresham. Show Bank D's balance sheet after the loan has been made out. BANK D Assets Liabilities a) Reserves Number b) Deposits Number c) Loans Number Part 5: Calculate the total deposits in all depository institutions as a result of Ms. Aby's original $8,500 deposit, the total loans these institutions have extended, and the total amount added to their reserves when the above process continues to completion: (3 marks each) a) Credit (or deposit) multiplier Number b) Total Deposits Number c) Total Reserves Number d) Total Loans NumberConsider the Money Market characterized by the following data: (26 Marks) Part 1: Calculate Total Demand for Money to complete the table below if Transactions and Precautionary Demand for Money at the given level of income (Y) and the general price level (P) is MDTP = 6,582. Interest Asset Demand for Total Demand for Money: Question Rate Money (MDA) MD = MDA + MDTP Number Part 1(2) 21 1,637 Number Part 1(b) 19 3,083 Number Part 1(C) 17 4,385 Number Part 1(d) 15 5,541 Number part 1(@) 13 6,554 Number Part 1(f) 11 7,421 Number Part 2: Given the Total Money Demand schedule in your table above, determine the equilibrium interest rate if the money supply is 8,219: Number Part 3: Suppose Transactions Demand for Money fell by 2748. Calculate the new Transactions and Precautionary Demand for money, (MDTP_2): Number Part 4: Based on the new Transactions and Precautionary demand for money you calculated in Part 3 above, calculate Total Demand for Money at all interest rates to complete the table below. Question Interest Asset Demand for Total Demand for Money: Number Rate Money (MDA) MD_2 = MDA + MOTP_2 Part 4(2) 21 1,637 Number Part 4(b) 19 3,083 Number Part 4(C) 17 4,385 Number Part 4(d) 15 5,541 Number Part 4(e) 13 6.554 Number Part 4(f) 11 7,421 NumberPart 4: Based on the new Transactions and Precautionary demand for money you calculated in Part 3 above, calculate Total Demand for Money at all interest rates to complete the table below. Question Interest Asset Demand for Total Demand for Money: Number Rate Money (MDA) MD_2 = MDA + MOTP_2 Part 4(2) 21 1,637 Number Part 4(b) 19 3,083 Number Part 4(c) 17 4,385 Number Part 4(d) 15 5,541 Number Part 4(@) 13 6,554 Number Part 4(f) 11 7,421 Number Part 5: Determine the new equilibrium interest rate assuming the Central Bank kept the money supply unchanged at 8,219: Number % Part 6: At the public's new lower demand for money, the Central Bank can raise the equilibrium interest rate back to the original equilibrium level (Part 2 above) by the Money Supply by Number from Number to NumberUse the four-panel Graph of the Monetary Transmission Mechanism to answer the questions that follow. The economy's original equilibrium is denoted point A in each graph. (34 Marks) The Monetary (Policy) Transmission Mechanism Janet 1: The Honey ,Market Panel 2: Javestment Demand I My" 11% 11% 9% 9% 8% 8% -Md, (P2. Y.) -- Md P. Y) Md, IP, Y,) 572 629 200 209 222 235 Quantity_of Money Business_Investment_Expenditures Panet 3: aggregate Expenditures Janet 4: aggregate Demand & Supply AE = Y LRAS SRAS AF _ - - AE2 SRAS, AEI 601 E AED D 111.8 516 105.7 AO 103.6 - ADO Yo 1,954 Y2 1,852 1,954 2,081 2,276 Real_GDP Real_GDP Part 1: Suppose the money market is originally in equilibrium at point A. An increase in the money supply from 572 to 629: Click for List (2 marks) Part 2: All other things equal, the increase in the money supply from 572 to 629 will cause Click for List . (2 marks) Part 3: In the Aggregate Expenditures model, the increase in money supply from 572 to 629 Click for List - (2 marks) Part 4: Which components of Aggregate Expenditures are impacted by the increase in money supply from 572 to 629: Click for List (2 marks) Part 5: The inflationary gap resulting from a shift in the Aggregate Demand curve to AD1 is |Number (2 marks) Part 6: The economy's long-term response to the shift in Aggregate Demand curve to AD1 will Click for List . (2 marks)Part 1: Suppose the money market is originally in equilibrium at point A. An increase in the money supply from 572 to 629: Click for List . (2 marks) moves economy to point C as the demand for money rises simultaneously to Md1(P1,Y1) to reduce interest rates to 8%%. does not affect interest rates as points B, C, and D all occur on the new money supply curve Ms1. the dynamic response from money demand returns money supply to Ms0 at point E, raising interest rates to 11%. moves economy down Mdo(PD,YO) to point B and reduces interest rates to 7 %%. moves economy to point D as the demand for money rises simultaneously to Md2(P2,Y2) to keep interest rates at 9%%. Part 4: Which components of Aggregate Expenditures are impacted by the increase in money supply from 572 to 629:Part 2: All other things equal, the increase in the money supply from 572 to 629 will cause Click for List . (2 marks) desired investment expenditures to rise from 200 to 209. desired investment expenditures to fall from 209 to 200. oney supply from 572 to 629 - (2 marks) desired investment expenditures to rise from 222 to 235. desired investment expenditures to remain at an average of 222. cted by the increase in money supply fr desired investment expenditures to rise from 209 to 235. desired investment expenditures to fall from 235 to 209.Part 3: In the Aggregate Expenditures model, the increase in money supply from 572 to 629 shifts the Aggregate Expenditures curve and puts the economy at point B. - (2 marks) shifts the Aggregate Expenditures curve and puts the economy at point B. moves the economy from point A to point E. hey supply from 572 to - (2 marks) Has no effect on Aggregate Expenditures since the higher money supply simply raises all prices. moves the economy from point A to point D. Number 12 shifts the Aggregate Expenditures curve and puts the economy at point C. Part 6: The economy's long-term response to the shift in Aggregate Demand curve to AD1 willPart 4: Which components of Aggregate Expenditures are impacted by the increase in money supply from 572 to 629: Click for List (2 marks) Consumption rises, investment rises, goverment expenditures are not affected, net exports rise. Consumption rises, investment rises, government expenditures rise, net exports rise. (2 marks) Consumption rises, investment expenditures rise, government expenditures are not affeted, net exports fall. Consumption falls, investment rises, government expenditures rise, net exports fall. Consumption falls, investment rises, government expenditures rise, net exports are not affected.. Part 7: If the increase in autonomous expenditures as interest rates fell from 9 to 7 shifted the An curve from ADD to An1-Part 6: The economy's long-term response to the shift in Aggregate Demand curve to AD1 will Click for List . (2 marks) move the economy to a new equilibrium at point L and leave output unchanged at 1,954. move the economy to a new equilibrium at point J and increase output to 2,276. shifted the AD curv move the economy to equilibrium at point A and leave output unchanged at 1,954. move the economy to a new equilibrium at point M and reduce output to 1,852. short run? Nun move the economy to a new equilibrium at point K and increase output to 2,081. Supply model:Part 7: If the increase in autonomous expenditures as interest rates fell from 9 to 7 shifted the AD curve from ADO to AD1: a) Calculate the increase in ouput in the short run: Number (2 marks) b) How much inflation resulted from this increase in Aggregate Demand in the short run? Number (2 marks) c) Calculate the expenditures multiplier in the Aggregate Demand-Aggregate Supply model: Number (3 marks) d) Calculate the increase in output in the long run: |Number (2 marks) e) How much inflation resulted from the reduction in interest rates from 9 to 7 in the long run? Number (2 marks) Part 8: The increase money supply from 572 to 629 increased business investment expenditures by: Number - 12 marks) Part 9: The increase in money suppy from 572 to 629 increased autonomous expenditures by: Number (2 marks) Part 10: Using numbers from the Aggregate Demand-Aggregate Supply model (Panel 4), what is the new equilibrium output (Y2) in the Aggregate Expenditures (AE) model after the increase in the money supply from 572 to 629? |Number . (2 marks) Part 11: Calculate the expenditures multiplier from the Aggregate Expenditures model: Number (3 marks) Part 12: Based on the Aggregate Expenditures model, how much inflation resulted from the increase in Aggregate Expenditures from AE1 to AE2 due to the increase in money supply from 572 to 629? | Number (2 marks)4 Identify the word, concept, or expression most closely related to the word, concept, or expression below: Capital Inflow Click for List Commercial bank loans Asset Demand for Money 5 Identify the wo dated to the word, concept, or expression below: Appreciation of the dollar Expansionary Commercial banks' target reserve ratio5 Identify the word, concept, or expression most closely related to the word, concept, or expression below: Expansionary Monetary Policy Click for List Asset Demand for Money Appreciation of the dollar 6 Identify the word, concept, or ex concept, or expression below: Open Market Operations Excess Bank Reserves Click Commercial banks' target reserve ratio6 Identify the word, concept, or expression most closely related to the word, concept, or expression below: Excess Bank Reserves Click for List Open Market Sales Commercial bank loans Asset Demand for Money Appreciation of the dollarFiat currencies have no intrinsic value and are not convertible to gold or silver. O True O False 8 Commercial banks create currency as part of the money supply O True O False 9 Bank loans constitute part of commercial banks' assets. O True O False10 An appreciation of the Canadian dollar raises net exports and the equilibrium output. O True False 11 Speculative Demand for Money is the amount of money the public holds to meet uncertain future expenditures. O True O False 12 An Open Market Purchase by the Bank of Canada reduces the equilibrium interest rate. O True False 3 An Open Market Sale by the Bank of Canada causes Canada's exchange rate to appreciate. O True O FalsePart 1: Suppose the money market is originally in equilibrium al point A. An increase in the money supply from 572 to 629. Click for List . (2 marks) moves coonomy to point C as the demand for money moes simultaneously to Md1(P1, Y 1) to reduce interest rates to % does not affect interest rates as points B. C. and D all occur on the new money supply curve Ms1, the dynamic response from imoney demand returns money supply to Mad at point E, raising interest rates to 11%. moves economy down MdD(PQ.VO) to point B and reduces interest rates to 7%%. moves economy to point D as the demand for money rises simultaneously to Md2/P2,V2) to keep interest rates at 9% Part 4: Which components of Aggregale Expenditures are impacted by the increase in money supply from 572 to 629: Part 2: All other things equal, the increase in the money supply from 572 to 629 wil cause Click for List . (2 marks) desired investment expenditures to rise from 200 in 209. desired investment expenditures to fall from 200 to 200. oney supply from 572 to 629 desired investment expenditures to rise from 222 to 235. - (2 marks) desired investment expenditures to remain at an average of 222. cted by the increase in money supply fo desired investment expenditures to rise from 209 to 235. desired investment expenditures to fall from 230 to 208. Part 3: In the Aggregate Expenditures model, the increase in money supply from 572 to 629 shifts the Aggregate Expenditures curve and puts the economy at point B. - (2 marks) shifts the Aggregate Expenditures cane and puts the economy at paint B. moves the coonomy from point A to point E. ley supply from 572 ic Has no effect on Aggregate Expenditures since the higher money supply simply raises all prices. . (2 marks) moves the coonomy from point A to point D. Number 12 shifts the Aggregate Expenditures curve and puts the economy at point C Part 6: The economy's long-term response to the shift in Aggregate Demand curve to AD1 wil Part 4: Which components of Aggregate Expenditures are impacted by the increase in money supply from 572 to 629: Click for List - (2 marks) Concompton rises, immaciment rises, government expand tures are not affected, not exports rise. Consumption rises. investment rises, government expenditures rise. net exports noe (2 marke) Consumption rises, investment expenditures rise, government expenditures are not affated, net exports fall. Consumption falls, investment rises. goverment expenditures rise. net exports fall. Consumption falls, investment rises, goverment expenditures rice. net exports are not affected. Part 7- If the increase in autonomous expenditures as Interest rates fall from 9 to 7 shifted the An curve from And to And- Part 6: The economy's long-term response to the shift in Aggregate Demand curve to AD1 will Click for List - (2 marks] move the economy lo a new equ barium at point L and leave output unchanged at 1.954. move the economy to a new equilibrium at point J and increase output to 2,270 shifted the AD cur move the economy to equilibrium at point A and leave output unchanged at 1,864. move the economy to a new equilibrium at point M and reduce output to 1.852 : short run? |Num move the economy to a now equilibrium at point K and increase output to 2,081. Supply model: IN