TASK

Suppose that Canadian citizens start saving more.

1. What does this imply about the supply of loanable funds and the equilibrium real interest rate?
2. What happens to the net exports?

First National Bank of Me (FNBM) has $10,000 of deposits, a reserve ratio of 20 percent, and excess reserves of $500.

1. Draw a simple T-account for First National Bank of Me.
2. The largest depositor of FNBM withdraws $1,000. If the bank decides to restore its reserve ratio by reducing the amount of loans outstanding, show its new T-account.
3. Why might it be difficult for FNBM to take the action described in part question 4? Is there another way for FNBM to return to its original reserve ratio?

Your brother-in-law wants to buy either stock or bonds in Cedar Valley Furniture, but he isn’t sure which to buy. He just told you: “I have reason to believe that people are soon going to find rocking chairs have health benefits.”

1. Explain how his statement should affect his choice between the stock and the bond.

Economists that favor balanced budgets warn against increases in government spending without a corresponding increase in taxes.

1. Show graphically (and using words too!) the impact of a persistent increase in budget deficit on the real interest rate.
2. How would this affect the well-being of the country?

Assume that changes in the healthcare market cause employers to pay significantly less for health insurance they provide employees. Use the Aggregate Demand-Aggregate Supply model to answer the following four questions.

1. What is the short-run macroeconomic impact of this change in the healthcare market?
2. What is the long-run impact?
3. Present an argument for using macroeconomic policy to deal with the changes in the healthcare market. What kind of policy should be used?
4. Present an argument for not using a macroeconomic policy.

Consider a closed economy with no government, autonomous consumption of $250 billion, planned investment of $450 billion and the marginal propensity to consume of 3/4.

1. Plot the planned aggregate expenditure. Make sure you properly label your axis, vertical/horizontal intercepts, etc …
2. What is the unplanned inventory investment when read GDP is $600 billion?
3. What is the equilibrium GDP?
4. What is the value of the simple multiplier?