Question 1

a) Let's assume that upon graduation, you are deciding between two job offers in different cities (i.e. Terra and Smallville) in a hypothetical country, Wakanda. The job offer in Terra pays a salary of $50,000 per year, while the Smallville job offer pays a salary of $40,000 per year.The Consumer Price Index (CPI) in Terra is 150, and the CPI in Smallville is 90.

i)Calculate the Terra salary in Smallville dollars and Smallville salary in Terra dollars. Workings has to be shown.(4 marks)

ii)Which offer should you take up? Explain your decision. (2 marks)

b) The Central Bank of Country X has recently announced that the statutory reserve requirement is 20%. If the Central Bank decides to increase money supply by $40 million, analyse and explain how the Central Bank can accomplish this goal. (4 marks)