ECN 1020 - MACROECONOMICS Assignment #3 Input your answers to the following questions into Assignment #3 Questions/Quiz (Chapters 7 & 8) on the Moodle site. Note that there is a 1 hour time limit and that you are allowed only one attempt. DETERMINE THE ANSWERS TO THE QUESTIONS before you attempt the Moodle quiz. Enter your information VERY carefully, following the examples provided. Chapter 7 1. (Similar to Basic Problem 1-3 and with reference to Table 7.8 on page 318) Use the data provided to help you answer the following questions. It shows the revenue and spending of the Canadian federal government for a chosen fiscal year. For simplicity, assume that all of the spending grants to other levels of government were spent in Canada on goods and services. (Corrections to table 7.8 Total Outlays 211.0, thus Projected Budget Plan Surplus 11.2) (All answers to one decimal place.) a) What are the projected NTR's in this budget plan? b) What is the value of NTR less government spending on goods and services (G)? ) What percentage of total revenue are personal income taxes? d) What percentage of total revenue are corporate income taxes? e) What percentage of total outlays are transfer payments to persons? f) What percentage of total outlays are public debt charges? (Value - 2 marks each total 12 marks) (Similar to Question 2 on page 318) Government spending in Tobasco is $140 billion, and its only tax is an income tax with a marginal tax rate of 0.35. (All answers to zero decimal places.) a) What is the balance on the government's budget at a GDP level of $360 billion? (deficit or surplus) b) What is the balance on the government's budget at a GDP level of $500 billion? (deficit or surplus) c) At what level of GDP will the economy of Tobasco have a balanced budget? (Value - 2 marks each total 10 marks) TABLE 7.8 Federal Government's Budget for Fiscal Year REVENUES ($) OUTLAYS ($) Personal income taxes 103.7 Transfers to persons 52.6 Corporate income taxes 31.7 Spending grants to other levels of government 42.8 Other income taxes 4.5 Public debt charges 33.8 GST and excise taxes 46.2 Direct program spending 81.8 El premiums 16.5 Total Outlays 209.0 Other revenues 19.6 Budget Surplus 13.2 Total Revenues 222.2 a) What are the projected NTRs in this budget plan? b) What is the value of NTR less government spending on goods and services (G)? What percentage of total revenue is c) personal income taxes? d) corporate income taxes? What percentage of total outlays is e) transfer payments to persons? f) public debt charges? 2. (LLO 1) Government spending in Robok is $ 140 billion, and its only tax is an income tax with a marginal tax rate of 0.35. a) What is the balance on the government's budget at a GDP level of $360 billion? What is the balance on the government's budget at a GDP level of $500 billion? c ) At what level of GDP will the economy of Robok have a balanced budget?Problems for Further Study Basic (Problems 1-5) 1. ( LO 3) Name the necessary bookkeeping entries in the accounts of the Friedman Bank to record the following transactions. a) The Friedman Bank sells some of its old computers for $20 000 in cash. b) The bank buys $50 000 worth of government bonds from one of its customers and pays by cheque. Page 356 c) The Friedman Bank calls in the $5000 loan of Kim's, who pays in cash. d) The bank grants a loan of $ 10 000 to Radim. e) Radim, a customer of the Friedman Bank, writes a cheque for $10 000 payable to his father, who deposits it in his own account at the same bank. 2. (LO 3) In which of the following circumstances has the money supply changed? a) Mario deposits $ 1000 at his bank b) Mario withdraws $ 1000 from his bank. c) Mario lends Luigi $ 1000 d) The bank lends Mario $ 1000. e) Mario lends the bank $ 1000. 3. (LO 1) What are the three functions of money? 4. () LO 2) What is meant by the term the spread? 5. (LO 1) What is the earliest origin of money? Intermediate (Problems 6-8) 6. ( LO 1) What two key factors resulted in the early merchant banks becoming modern commercial banks?To understand how just a small amount of reserves can support many loans and deposits, we need first to understand a few very basic accounting terms. Assets, Liabilities, and Balance Sheets A balance sheet presents the financial condition of an institution at a particular moment in time. (The profit and loss statement is of no concern here.) On one side are listed all the assets and on the other side the liabilities. Assets comprise what a company owns or what others owe it. Liabilities comprise what a company owes to others. The difference between the two is the net worth of the company, otherwise known as equity. Equity is the book value of the company to its shareholders. (The company's market value may be more or less than its book value.) The following is a simplified balance sheet of the Saymor Bank Limited. BALANCE SHEET OF SAYMOR BANK LTD. AS OF DECEMBER 31, 2020 Assets Liabilities and Equity Reserves $ 10 000 Demand deposits $100 000 Loans to customers 60 000 Shareholders' equity 20 000 Securities 30 000 Fixed assets 20 000 $ 120 000 $120 000 The assets are all listed in terms of liquidity (closeness to cash), with the most liquid at the top. Reserves are the currency held, in part, by the bank as cash on hand (vault cash) and, in part, on deposit with the Bank of Canada. Loans to customers represent one of the income- earning assets of the bank and are their most important and most lucrative assets. Securities are shares (gilt-edged-that is, very secure, "as1. (DLO 3) Table 8.4 shows the balance sheet of the Bruins Bank TABLE 8.4 Bruins Bank Balance Sheet Assets Liabilities/Equity Reserves $ 24 Demand deposits $400 Loans 280 Shareholders" equity 20 Securities 80 Fixed assets Totals $420 $420 By how much is the Bruins Bank over- or under-reserved, if the target reserve ratio is a) 2 percent? b) 5 percent? c) 8 percent? d) 12 percent? 2. (LLO 3) What is the value of the money multiplier if the target reserve ratios of all banks in the banking system are as follows? ) 2 percent b) 5 percent c) 8 percent d) 12 percent 3. ( LO 3) 4 Table 8.5 is the balance sheet for the Oilers Bank, which has a target reserve ratio of 5 percent.Chapter 8 3. (Similar to Basic Problem 1 and with reference to Table 8.4 on page 352) The table shows the balance sheet of the Bruins Bank. By how much is the Bruins Bank over- or under-reserved, if the target reserve ratio is: (All answers to zero decimal places.) a) 2 percent? (over or under) b) 5 percent? (over or under) c) 8 percent? (over or under) d) 12 percent? (over or under) (Value - 1 mark each (over/under) two marks each rest of answer - total 12 marks) 4. (Similar to Basic Problem 2 on Page 352) What is the value of the money multiplier if the target reserve ratios of all banks in the banking system are as follows: (provide answers to one decimal place) a) 2 percent? b) 5 percent? c) 8 percent? d) 12 percent? (Value - 2 marks each - total 8 marks) 5. (Similar to Basic Problem 2 - Problems for Further Study on page 356) In which of the following circumstances has the money supply changed? a) Norm deposits $3000 at his bank. (Yes or No) b) Norm withdraws $1500 from his bank. (Yes or No) c) Norm lends Lenny $5000. (Yes or No) d) The bank lends Norm $10000. (Yes or No) (Value - 2 marks each - total 8 marks) Total Marks - 50 marks Due: End of the day - Friday, March 8, 2024 (Term Test #2 will be on Wednesday, March 27, 2024)