Back to Assignment Attempts I I Keep the Highest] 1 13. Problems and Applications Q5 You take $200 you had kept under your mattress and deposit it in your bank account. Suppose this $200 stays in the banking system as reserves and banks hold reserves equal to 20 percent of deposits. The total amount of deposits in the banking system increases by , and the money supply increases by . 11. Identifying costs of inflation Sean manages a grocery store in a country experiencing a high rate of inflation. To keep up with inflation, he spends a lot of time every day updating the prices, printing new price tags, and sending out newspaper inserts advertising the new prices. His employees regularly deal with customer annoyance over the frequent price changes. This is an example of the of inflation.10. Using money creation to pay for government spending Consider Snackistan, a hypothetical country that produces only burgers. In 2016, a burger is priced at $4.00. Complete the first row of the table with the quantity of burgers that can be bought with $900. Hint: In this problem, assume it is not possible to buy a fraction of a burger, and always round down to the nearest whole burger. For example, if your calculations result in 1.5 burgers, the answer should be 1 burger. Price of a Burger Burgers Bought with $900 Year (Dollars) (Quantity) 2016 4.00 2017 Suppose the government of Snackistan cannot raise sufficient tax revenue to pay its debts. In order to meet its debt obligations, the government prints money. As a result, the money supply rises by 20% by 2017.Assuming monetary neutrality holds, complete the second row of the table with the new price of a burger and the new quantity of burgers that can be bought with $900 in 2017. The impact of the government's decision to raise revenue by printing money on the value of money is known as the8. Problems and Applications Q8 Suppose that people expect inflation to equal 4 percent, but in fact, prices rise by 2 percent. Which of the following groups or individuals are hurt by this unexpectedly low inflation rate? Check all that apply. A union worker in the second year of a labor contract A homeowner with a fixed-rate mortgage The government A college that has invested some of its endowment in government bonds that are not indexed Treasury bonds7. Problems and Applications Q7 Money serves three functions in the economy: medium of exchange, unit of account, and store of value. Which of the following statements describes how inflation affects the ability of money to serve as a store of value? Check all that apply. Inflation causes menu costs. In some countries with hyperinflation, prices are posted in terms of U.S. dollars rather than the local currency, even though the local currency is still used to purchase the good. Inflation erodes money's purchasing power