Assist me expert tutors.

7531/Lessons/Problem 9%20sets/Problem 4. Assume the Fed buys a bond from a US bank for $1000, this becomes excess reserves for the bank and get loaned out, since we will assume banks do not hold on to excess reserves. Suppose that all banks have a desired reserve ratio of 20%. The following table shows how deposits, reserves, and loans enable the creation of money. A. Complete the table below. Round Change in Change in Change in Loans Deposits Reserves First $0 $1000 Second Third Fourth Fifth B. After 5 rounds, what is the total change in deposits as a result of the single NEW deposit? C. What is the eventual total change in deposits? D. What is the eventual total change in the money supply? E. Assume that the Federal Reserve implements a new law that sets a required reserve ratio equal to 30%. How would this have changed your answers to parts Cand D. 5. Suppose AD in a country is given by P=210-.02Y, SRAS is given by P=100, and potential output is equal to 7000. The marginal propensity to consume is .4. A. What type of output gap exists and what is the size of the gap? B. If the government wanted to push the economy back towards LR-equilibrium by changing taxes and they changed net taxes such that the new AD curve is equal to P=250-,02Y, by how much did they change net taxes? C. What happens to real GDP and the price level in the short-run? D. If they had perfect information about the economy, by how much would they have changed net taxes? E. What is the corresponding AD curve?9. Consider the AD-AS model in a closed economy. Firms are perfectly competitive and the price level Pis flexible. Output Y is produced according to the production function Y = F(L), where L is employment. Employment is chosen by firms to maximize profits. (a) [3 marks] Show that the first-order condition for profit-maximizing labour de- mand is W/P = F'(L). Assume nominal wages W are contractually fixed at W = W, and that workers' desired labour supply (which increases with the real wage) is greater than firms' labour demand at the fixed nominal wage. (b) [4 marks] Assume the marginal product of labour is diminishing. Using a diagram to represent the labour market, show how the short-run aggregate supply curve is derived. (c) [4 marks] Use the AD-AS model to find the effects of a decrease in the money supply on GDP, prices, and unemployment. Are the predictions of the model consistent with Okun's law? Now suppose that firms have a fixed level of capacity to produce output. The marginal product of labour is assumed to be a constant A for employment up to L', where capacity is fully utilized, and zero for employment greater than L'. (d) [4 marks] How does the shape of the short-run aggregate supply curve in this special case differ from what you derived in part (b)? Explain. Maintaining the assumptions from part (d), suppose the economy initially has employment equal to (*. (e) [2 marks] Find the effects on GDP and prices of increasing the money supply. (f) [3 marks] Suppose the central bank's goals are high GDP and low goods prices. Can you conclude from your answer to part (e) that the central bank should reduce the money supply? [Hint: Consider separately the cases where P = W/A and P > W/A]2. Assume that Apple has a monopoly in the market for iPads (assume there are no close substitutes and barriers to entry). The marginal cost of production for an Apple iPad is constant at $200 per unit, and suppose demand is given by Q = 200 - D.2P, where quantity is measured in millions and price in dollars. a. Derive the marginal revenue curve (MR) from the demand curve. in. Set marginal revenue equal to marginal cost and solve for quantity. 5. Find the prot maximizing price. d. Illustrate the profit-maximizing price and output for this monopolist in a graph (a rough sketch), showing the demand curve, the MR curve and the MC curve. Consider the imaginary country of Schoolandia, a developing country where people live for four "years" and everyone must make decisions regarding their education. During age 1, everyone goes to primary school. At age 2, they can decide whether to go to secondary school or go to work. At age 3, if they went to secondary school they can decide whether to go to college or go to work. At age 4 everybody works. This translates into three alternative lifetime earnings options, summarized in the table below: Lifetime Earning Options (Schoolandia $) Options Age 1 Age 2 Age 3 Age 4 A. Primary 0 300 400 500 school B. Secondary 0 0 600 800 School C. College 0 0 0 2300 Consider Susan and May, secondary school graduates who must decide whether to invest in a college education or enter the job market. College costs $800, but the government pays part of it, so the cost to Susan and May is only $500. What is the private rate of return to investing in a college education for these two women? (Remember that Susan and May makes their decision at age 3.) SHOW YOUR WORK. For the question above, calculate the SOCIAL rate of return. Why do most estimates of social rates of return not include the social benefits of education?10. Consider a government with preferences represented by the loss function L = 72 + au2 where it is the inflation rate, u is the unemployment rate, and a is a positive con- stant indicating the strength of the government's preference for low and stable unemployment relative to low and stable inflation. The expectations-augmented Phillips curve linking inflation and unemployment is: U = Un - b(7 - 7) where " denotes inflation expectations, Un is the natural rate of unemployment, and b is a positive constant. Expectations of inflation are assumed to be rational. Assume that monetary policy is able to control the inflation rate it directly. Suppose initially that the government chooses a monetary policy without being restricted by any past commitments (the government acts with discretion). This means inflation expectations ," are taken as given when monetary policy is cho- sen. (a) [3 marks] Derive the first-order condition for the inflation rate ? that mini- mizes the loss function subject to the Phillips curve for given ?". As expectations are formed rationally, everyone anticipates the actions of the cen- tral bank determined in part (a). (b) [3 marks] Find the equilibrium unemployment and inflation rates in terms of a, b, and Un. (c) [4 marks] Suppose political pressure forces the government to shift its focus away from inflation towards unemployment. Interpreting this as an increase in a in the loss function, what are the effects on the equilibrium values of u and ? Explain your findings with reference to the policy ineffectiveness proposition. The government announces it will follow a rule that strictly targets inflation . (d) [4 marks] Assuming that everyone believes the rule will be followed, find the optimal rule for the inflation rate that minimizes the loss function. What is the equilibrium unemployment rate when the government follows the rule? (e) [6 marks] Once everyone chooses inflation expectations consistent with your answer to part (d), suppose the government is now free to choose inflation taking a" as given as it did in part (a). Solve for the resulting values of u and ". By comparing your answer to part (d), explain why the optimal rule for inflation is time inconsistent