Please solve the questions with step-by-step explanations. Thank you.

1. A baker located in NYC buys milk from Milwaukee (Wisconsin) (cost is $2), flour from Tallahassee (Florida) (cost is $2) and cream cheese from Normandy (France) (cost is $4) to produce a cheesecake. The owner of a restaurant in Manhattan - a Canadian citizen - buys this cheesecake from the baker for $10 and serves it to a young customer, Masih, who goes there in the afternoon to have a snack. Masih is charged $17 for the cheesecake. (a) By how much does U.S. GDP increase? (b) By how much does U.S. GNP increase? 2. Suppose the GDP deflator is 110 in 2018. If all prices increase by 2% and all quantities increase by 4%, what is the GDP deflator in 2019? 3. Consider the long run of a closed economy with a consumption function given by O= a+ 0.5(Y -T) and a market for loans in equilibrium. Draw the market for loans and let A denote the point where the supply of loans intersects the demand for loans. At point A the amount of loans is 60. Suppose now that the government finances a public school, which costs 30, by increasing borrowing by 20 and by increasing taxes. What is the change in consumption and investment? What is the resulting equilibrium amount of loans? 4. Assume an economy's monetary base is $1,000, currency held by the public is $400 and bank reserves are $600. Assume that the reserve deposit ratio, ry, is 0.1. (a) Calculate the currency deposit ratio and the money supply. (b) Suppose now that the Fed decreases the interest it pays banks for holding reserves. As a consequence, banks decrease reserves. The total amount of reserves that banks hold are now 500. How much is the new value of the money supply? (c) Describe what variables of the model are affected by the Fed policy described in (b) and provide intuition for each of the changes. 5. Suppose the Fed sells government bonds. (a) Does the open market operation described above increase the price level? Defend your answer. (b) Does the open market operation described above redistribute resources between creditors and debtors? Defend your