Problem Set 2 A. Conalder the following bank balance sheet 1. What in the net equity of this bark? 2. What fis this bank's Iencrige ratio? 3. What does the number you got trom part 2 mean la plaln wordh? What does it mean for the safety of the bank? 4. What is the bank's reserve ratio? 5. How eas this bank become insolveat? What kind of actions ens leed to the benk's insolvency? 6. What are the consecqueses of insolvency? What cas the governmetat do to help perevent this from occuriag? B. Money Supply 1. Why can't the Federal Reserve precisely control the money supply? 2. Why is it important that the Federal Reserve (or other central banks) to remais independent of the government? 3. Suppose the Fed wants to roduce money supply in the economy. Name 3 whys that the Fed can do so, be spocific. C. Suppoee an economy only produces benanas. In 2017 this country produced 1000 tous of banans. M2017S=$3000,P2017=$6/ ton. 1. Suppose in 2018, money supply increses by 10%, but the economy still produces 1000 tons of banana. Using the money velocity equation PY=M5V, calculate the nominal GDP of 2018, the price of bananas in 2018, and the rate of inflation from 2017 to 2018 (Hint: V remains constant over time). 2. How does the rate of inflation compare to the rate of money growth when the country's production (real GDP) remained the same? 3. Consider an alternate scenario. If insteed in 2018, improved technology allowed production to also increase by 10%, compute the 20172018 inflation rate. How does the rate of inflation compare to the rate of money growth when production (real GDP) has increased