# Econ110B_prob2_answers - risk occurs when a failure of one...

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ECON 110B Problem Set 2 Solutions Grant E. Johnson and Eul Noh January 2016 Chapter 10, exercise 4 (page 273) (a) Bank B: assets=1500, liabilities=1400, equity=100; Bank C: assets=800, liabilities=700, equity=100. (b) Bank B: 14/1; Bank C: 7/1. (c) Bank C’s new net worth is -200 Bank C’s net worth declines. (d) Bank B’s new net worth is -100 Bank B’s net worth declines. (e) The value of any financial asset is backed by a promise to pay. In this case, Bank C fails to meet its promise to pay and reduces the value of assets held by Bank B. Systematic

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Unformatted text preview: risk occurs when a failure of one business, like Bank C, causes the failure of another business, like Bank B. Chapter 11, exercise 1 (pages 299-300) (a) ˜ Y t ↓ 1 . 5% (b) ˜ Y t ↑ . 75% (c) ˜ Y t ↑ 1% (d) ˜ Y t ↓ 2% 1 Chapter 11, exercise 3 (page 300) (a) ¯ a i ↑ ⇒ the IS curve shifts to the right. (b) ¯ a EX ↑ ⇒ the IS curve shifts to the right. (c) ¯ a IM ↑ ⇒ the IS curve shifts to the left. (d) ¯ a i ↓ ⇒ the IS curve shifts to the left. 2...
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