Exercise 1 (25 points)

Assume the government increases taxes by $2.3 million,

1. Calculate the tax multiplier in the 3 scenarios below. Show ALL you work (10 points)
2. By how much will aggregate demand decrease by in the 3 scenarios below? Show ALL you work (10 points)

Scenario 1: MPC = 0.6 and MPS = 0.4

Scenario 2: MPC = 0.5 and MPS = 0.5

Scenario 3: MPC = 0.2 and MPS = 0.8

1. What do you conclude? (5 points)

Exercise 2 (25 points)

Assume the government decreases spending by 1.5 million,

1. Calculate the government spending multiplier in the 3 scenarios below. Show ALL you work (10 points)
2. By how much will aggregate demand decrease by in the 3 scenarios below? Show ALL you work (10 points)

Scenario 1: MPC = 0.75 and MPS = 0.25

Scenario 2: MPC = 0.5 and MPS = 0.5

Scenario 3: MPC = 0.25 and MPS = 0.75

1. What do you conclude? (5 points)

Exercise 3(30 points)

Assume that excess reserves = $5,000. Loans = $8,000. Treasury bonds = $6,500. Demand deposits = $19,000 and Required reserves = $1,900.

1. Provide a T account(5 points)
2. Calculate owner's equity(5 points)
3. Calculate the reserve requirement ratio (RRR)(5 points)

If Sam deposits $2,350 in this bank.

1. Provide a new T account(5 points)
2. Calculate the new RRR. How much is the new excess reserve? What does this number represent? (5 points)
3. What is the change in total money supply? (5 points)

Exercise 4(20 marks)

Complete the table below. Show ALL your work

Change	Reserve requirement ratio (RRR)	Money Multiplier	Expansionary or Contractionary Monetary Policy	Change in Money Supply
Bank of Canada buys $70 million in treasury bonds	12%
Bank of Canada sells $120 million in treasury bonds	17%
Bank of Canada buys $80 million in treasury bonds	50%
Bank of Canada sells $20 million in treasury bonds	100%