Practice - ReVieW SGSSiOfl Practice 3. (4 pts) Assume the...

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Unformatted text preview: ReVieW SGSSiOfl Practice 3. (4 pts) Assume the FED’s transaction to contract the money supply is $10M and to maximize profits the banks keep reserves down to the legal minimum. Given a very large number of standard banks Whose initial position is shown below. FILL IN THE BLANKS: BANK 1 Assets Liabilities Assets Liabilities Assets Liabilities R $20M DD $200M R $ ____ __M DD $ ____ __M R $ ____ __M DD $ ____ __M GS 80M GS ____ __ M GS ____ __ M L 100M L ____ __ M L ____ __ M BANK 2 Assets Liabilities Assets Liabilities Assets Liabilities R $20M DD $200M R $ ____ __M DD $ ____ __M R $ ____ __M DD $ ____ __M GS 80M GS ____ __ M GS ____ __ M L 100M L ____ __ M L ____ __ M Where R is reserves, GS is government securities, L are loans, DD is demand deposits and the required reserve ratio is 10% 7 (4 pts) Assume the FED’s transaction to expand the money supply is $10M and to maximize profits the banks keep reserves down to the legal minimum and the required reserve ratio is 10%. Given all action takes place in a single bank Whose initial position is shown below. FILL IN THE BLANKS: BANK 1 Assets Liabilities Assets Liabilities Assets Liabilities R $20M DD $200M R $ ____ __ M DD $ ____ __ M R $ ____ __ M DD $ ____ __ M GS 80M GS ____ __ M GS ____ __ M L 100M L ____ __ M L ____ __ M BANK 1 Second Round Assets Liabilities Assets Liabilities Assets Liabilities R$ ____ __M DD$ ____ __M R$ ____ __M DD$ ____ __M R$ ____ __M DD$ ____ __M GS ____ __ M GS ____ __ M GS ____ __ M L ____ __ M L ____ __ M L ____ __ M SHOW WORK IN MARGI1\S Name: Group Leader: B. lS—LM Problem (23 pts —|— 6 bonus) Answers may or may not be integer Variables: Y real GNP, C consumption, I investment, G government expenditures, T taxes, i interest rate, M3 supply of money, p price level, % real supply of money, a, b , [0 c, e, and f are known constants 13:1. YzO—I—I—I—G C:a—|—b(Y—T) 1:10—cz' IS Solved: Y:k(A—ci)wherek:(1ib, and Aza—l—IO—l—G—bT LM solved;% : eY—fz' Equations to spolve the lS—LM model Y —|— kci : kA eY — : Ms/p IS-LM Solved for Y: Y = K[A + §%] where K = T A eqns: 1. AY = KAG 2. AI = —%AY 3. A? = %(k — K)AG. Given:G=900T=880M3=500a=5005=3/410:850p:1.e=0.25f=857c 22000:>k:4and [(21.2 Math 15 points math a) to e) Must show work below. a) (3 pt) What is the equilibrium Y7 Answer ________ __ b) (3 pts) Suppose that to reduce unemployment the government desires to raise Y by 288. What is the required AG? Answer _________ __ c) (3 pts )If G is increased by the amount in b) above, how much I is crowded out? Answer _________ __ d) (3 pts)Now suppose the real money supply Ms/p is increased to compensate the crowding out. What is AMS/p? Answer _________ __ e) (3 pts ) Suppose the government in b) used AT instead of AG and at the same time a decreased by 10 and [0 increased by 20, what is the required AT Answer _________ __ f) (5 pts) Draw and label IS/LM curves for a)—e) ...
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This note was uploaded on 04/23/2008 for the course ECON 304L taught by Professor Staff during the Spring '07 term at University of Texas at Austin.

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Practice - ReVieW SGSSiOfl Practice 3. (4 pts) Assume the...

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