Question 1 (10 marks) Suppose the government borrows S20 billion more next year

than this year.

1. 1) Use a supply-and-demand diagram to analyze this policy. Does the interest rate

rise or fall?

1. 2) What happens to investment? To private saving? To public saving? To national saving? Compare the size of the changes to the $20 billion of extra government

borrowing.

Question 2 (10 marks) The Intemational House residents at Rangsit University spent all of their income on cauliflower, broccoli, and carrots. In 2010, they bought 200 heads of cauliflower for S400, 100 bunches of broccoli for S150, and 1,000 carrots for $100. In 2011, they bought 150 heads of cauliflower for $450, 160 bunches of broccoli for $240, and 1,000 carrots for $200.

2. 1) Calculate the price of each vegetable cach year.

2. 2) Using 2010 as the base year, calculate the CPI for each year. 2. 3) What is the

inflation rate in 2011?

2. 3) What is the inflation rate in 2011?

Question 3 (10 marka First Commercial Bank (FCB) holds $200 million in deposits and maintains a reserve ratio of 5 percent. Show a T-account for BSB.

b. Now suppose that FCB's largest depositor withdraws $10 million in cash from her account. IFFCB decides to restore its reserve ratio by reducing the amountof loans

outstanding, showits new T-accourt.

C. Explain what effect FCB's action will have on other banks.

d. Why might it be difficult for FCB totake the action described in part (by? Discuss another way for FCB to returm to its original reserve ratio.

Queation 4(10machal Explain four ways in which a firm might increase its profits by

raising the wages it pays.

'l'l Minna 213641/340 Question 1 (10 marks) Suppose the government borrows 820 billion more next year than this year. 1.1) Use a supplyanddemand diagram to analyze this policy. Does the interest rate rise or fall? 1.2) What happens to investment? To private saving? To public saving? To national saving? Compare the size of the changes to the $20 billion of extra government borrowing. Question 2 (10 marks) The Intemational House residents at Rangsit University spent all of their income on cauliflower, broccoli, and carrots. In 2010, they bought 200 heads of cauliflower for 8400, 100 bunches of broccoli for 8150, and 1,000 carrots for $100. In 2011, they bought 150 heads of cauliflower for $450, 160 bunches of broccoli for $240, and 1,000 carrots for $200. 2.1) Calculate the price of each vegetable cach year. 2.2) Using 2010 as the base year, calculate the CPI for each year. 2.3) What is the inflation rate in 2011? 2.3) What is the inflation rate in 2011? Question 3 (10 marka First Commercial Bank (FCB) holds $200 million in deposits and maintains a reserve ratio of 5 percent. Show a Taccount for 888. b. Now suppose that FCB's largest depositor withdraws $10 million in cash from her account. lFFCB decides to restore its reserve ratio by reducing the amountof loans outstanding, showits new Taccourt. C. Explain what effect FCB's action will have on other banks. d. Why might it be difficult for FCB tota ke the action described in part (by? Discuss another way for FCB to returm to its original reserve ratio. Queation 4(10machal Explain four ways in which a firm might increase its profits by raising the wages it pays