Explain why each of the following statements is True, False, or Uncertain according to economic principles. Use diagrams where appropriate and show your calculations. It is the explanation that is important.

A1. Suppose the consolidated balance sheet of an economy where the public holds all its money in the form of bank deposits is shown in the following table. If the banking system is originally in equilibrium and then the economy's central bank sells 50 worth of government bonds to the banking system, immediately after the transaction there is no change in the money supply, but after the banking system has returned to equilibrium, the money supply is reduced by 1000.

Assets: Reserves - 100 Government Bonds - 300 Loans Outstanding - 1800 Total = 2200

Liabilities: Deposits - 2000 Capital - 200 Total 2200

A2. The credit card in your wallet is part of your money holdings.

A3. The yield of a bond that promises to pay 110 in one year's time is equal to 5% if the equilibrium price of that bond is 104.76.

A4. . Suppose price index that is used to guide central bank policy increases from 120 to 126. If the central bank has an inflation target of 2%, it should pursue an expansionary monetary policy. (AD-AS Diagram)