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Aadland - Spring 2013 Problem Solving / Essay Questions. (75 points) #11. (30 pts) Assume the monetary base (B) is $100 billion, the reserve-deposit ratio (rr) is 0.1, and the currency-deposit ratio (cr) is 0.1. Show your work. (a) (10 pts) What is the money supply? (b) (10 pts) If er changes to 0.2, but or is 0.1 and B is unchanged, what is the money supply? (c) (10 pts) Using your answer from part (b), what is the velocity of money if nominal GDP is $800 billion? What is the resulting level of inflation if velocity is constant, real GDP increases by 2%, and the money supply increases by 4%? Aadland - Spring 2013 #12. (30 pts) Consider the following Neoclassical model of the economy, where the domestic interest rate r and the world interest rate r. are in percentage terms. Show all your work. Supply Demand Y = F(K, L) = VKL C = 10 + 0.8(Y - T) K = 100; L = 64 1 = 20 - 2r r. = 5% G = 30, T = 50 (a) (10 pts) What is the level of GDP in the economy? In a closed economy, find the equilibrium real interest rate, national saving, and investment.Problem Solving / Essay Questions. (75 points) #11. (60 pts) Assume that currency (C) is $10 billion and reserves (R) are $20 billion, the reserve- deposit ratio (rr) is 0.1, and the currency-deposit ratio (cr) is 0.05. (a) (10 pts) What is the amount of demand deposits? What is the money supply? Show your work. (b) (10 pts) Just for part (b), assume the monetary base increases by $1 billion through an injection of new reserves. How much will this increase the money supply? Show how much the money supply will increase through the first two rounds of fractional-reserve lending. (c) (10 pts) Assume that the velocity of money is constant and real GDP growth is 2.5%. Janet Yellen and the Fed are targeting a 2% inflation rate. What is the target growth rate in the money supply? How much new money needs to be injected in the coming year to meet the target? Explain. Aadland - Spring 2015 (d) (10 pts) National savings is 200 and investment demand is / = 250 - 10r, where r is the real interest rate. Assuming the Fed hits the target inflation rate, what is the nominal interest rate? BONUS (5 pts): The government wishes to target a 3% nominal interest rate. All else equal, how much do they need to change government spending?Problem Solving / Essay Questions. (75 points) #11. (60 pts) Consider a macroeconomy that only produces two goods, A and B. The base year is 2015 and all quantities are measured in billions. Round all your answers to the nearest tenth. Quantity Prices Product 2015 2016 2015 2016 A 100 105 $20 $20 B 50 52 $100 $105 (a) (10 pts) Calculate the real GDP (Y) growth rate in 2016. (b) (10 pts) Calculate the inflation rate (7) in 2016 using the GDP deflator. Aadland - Spring 2016 (c) (10 pts) The money supply (M) is $1000 in 2016. What is the velocity of money? Now assume the Fed wishes to target a n = 2% inflation rate in 2017. If the growth in real GDP is expected to be the same in 2017 as in 2016, what money supply growth rate is necessary? How much new money must the Fed inject into the economy?Problem Solving / Essay Questions. (120 points) #21. (30 pts) Consider a macroeconomy that produces three goods. Quantity Price Product 2015 2016 2015 2016 A 6 $20 $25 in un UI $10 $15 nt $5 $10 (a) (10 pts) Calculate nominal and real GDP for 2015 and 2016 using 2015 as the base year. What is the GDP deflator in 2015 and 2016? What is the corresponding inflation rate? (b) (10 pts) Assume that the typical consumer's basket of goods is given by the quantities in 2015. Calculate the CPI for 2015 and 2016, as well as the CPI inflation rate. (c) (10 pts) Did aggregate output increase or decrease between 2015 and 2016? How does this relate to the change in real GDP? Why do you think the quantity of good C fell? Defend your answer. Aadland - Fall 2016 #22. (30 pts) This question focuses on the labor market and unemployment. Assume the adult population (N) of the U.S. is 255 million. The number of employed workers (E) is 145 million, and the number of unemployed workers (U) is 8 million. (a) (10 pts) What is the unemployment rate and the labor force participation rate? (b) (10 pts) The job finding rate (f) is 0.19 and the rate of job separation (s) is 0.01. What is the natural rate of unemployment? Is the current unemployment rate higher or lower than the natural rate? Use f and s to show that next month the actual unemployment rate will be closer to the natural rate
