Can you please provide some explanation on equilibrium values, the value of money multiplier and others.

1. Bob bought $5000 worth of Adobe Systems stock. This transaction was brokered by John,

who received $50 for his help. I think the $5000 should be included in GDP, and the $50

should not be included in GDP. State whether I am right or wrong with an explanation for

your answer. (10 points)

2. Assume that GDP (Y) is 5,000. Consumption (C). is given by the equation

C = 1,200 + 0.3(Y - T) - 50r, where r is the real interest rate. Investment (I) is given

by the equation

I = 1,500 - 50r. Taxes (T) are 1,000 and government spending (G) is 1,500.

1. What are the equilibrium values of C, I, and r? (5 points)
2. What are the values of private saving, public saving, and national saving? (5 points)

3 a. Suppose a government moves to reduce a budget deficit. Using the long-run

model of the economy developed in Chapter 3, graphically illustrate the

impact of reducing a government's budget deficit by reducing government

purchases. Be sure to label: i. the axes; ii. the curves; iii. the initial

equilibrium values; iv. the direction curves shift; and v. the terminal

equilibrium values. (5 points)

b. State in words what happens to: i. the real interest rate; ii. national saving; iii.

investment; iv. consumption; and v. output. (5 points)

4. Some economists have advocated replacing government deposit insurance with 100-

percent- reserve banking. Under this plan, banks would hold all deposits as reserves.

Deposit insurance would no longer be necessary, because banks would always have

the reserves to meet customer withdrawals.

a. What would happen to the money supply (defined as currency and bank

deposits) in the transition from fractional-reserve to 100-percent-reserve, if

this plan were implemented, holding other factors constant? (5 points)

1. What will be the value of the money multiplier? (5 points)

5. Assume that the demand for real money balance (M/P) is M/P = 0.6Y - 100i, where Y is national income and i is the nominal interest rate (in percent). The real interest rate r is fixed at 3 percent by the investment and saving functions. The expected inflation rate equals the rate of nominal money growth. If Y is 1,000, M is 100, and the growth rate of nominal money is 1 percent, what must i and P be?(10 points)