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MACROO1 - Word (Product Activation Failed) GE LAYOUT REFERENCES MAILINGS REVIEW VIEW FOXIT READER PDF Q1. Measuring GDP (6pts): A simple economy has four industries: . The agricultural industry sells $45 million in food products directly to households as well as $35 million to the steel industry, which turns the food into biofuel for their factories. . The iron mining industry produces iron, all of which is sold to the steel industry. Total sales to the steel industry are $200 million per year. . The coke industry produces coke which is combined with iron to make steel. Total sales to the steel industry are $45 million per year. . The steel industry processes the iron and coke together to make steel. The steel industry sells $300 million to the auto industry to make cars per year. Assume another $50 million is sold directly to consumers/households and companies to put up steel fencing around their properties. . The auto industry uses steel from the steel industry as well as other inputs (that it creates on its own) to sell $725 million in vehicles to the public. What is GDP? I. Q2. Assume that a country's production function is Y = AK 93 4 97. The ratio of capital to output is 3, the growth rate output is 3 percent, and the depreciation rate is 4 percent. Capital is paid its marginal product. a.What is the marginal product of capital in this situation? If theQ2. Assume that a country's production function is Y = AK 03 L 0.7. The ratio of capital to output is 3, the growth rate of output is 3 percent, and the depreciation rate is 4 percent. Capital is paid its marginal product. a.What is the marginal product of capital in this situation? b.If the economy is in a steady state, what must be the saving rate? c.What is the marginal product of capital if the economy reaches the Golden Rule level of capital? d. What must the saving rate be to achieve the Golden Rule level of capital? Q3.den Rule level of capital? Q3 Supposed commercial banks in Canada are required to maintain a reserve requirement equal to 20% of deposits. Also, assume that these banks do not hold any excess reserves. a. If the Bank of Canada sells $2 million of government bonds, what is the effect on Canada's reserves and money supply? (4 marks) b. Now suppose the Bank of Canada lowers the reserve requirement to 5%, but the commercial banks choose to hold another 5% of deposits as an excess reserve. Why might banks do so? (2 marks) What is the overall change in the money multiplier and the money supply as a result of these actions? (4 marks) Q4. Assume that Elliott deposits $1,000 in coins he collected into his checking account. The required reserve ratio for the banking system is 10% and Elliott's bank was fully loaned up prior to his deposit. a. Explain the immediate effect of his deposit on the M1 measure of the money supply. b.Calculate the following: i. the maximum amount the bank will loan out ii. the maximum increase in the money supply as a result of this transaction d. Now assume that the Federal Reserve purchases $10 million in government bonds. Calculate the maximum increase in the total money supply. e. Given the increase in the money supply when the Federal Reserve purchases bonds, are people with fixed incomes better off, worse off, or unaffected? Explain
