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Midterm2SA_1101

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Exam Name___________________________________ ESSAY. Write your answer in the space provided or on a separate sheet of paper. 1) A bank has reserves of \$50, deposits of \$100, loans of \$20, and government securities of \$30. Assume the desired reserve ratio is 20 percent. a) How much does the bank have in excess reserves? b) What can the bank do with its excess reserves? Name two options. c) Suppose the currency drain ratio is 30%. What is the value of the money multiplier? d) How much new money can be created if the banks lend out all their excess reserves? 2) Using a graph, draw and label the phases and turning points of the business cycle. 3) On January 1, 2008, United Delivery had trucks valued at \$1.3 million. During 2008, United Delivery purchased new trucks valued at \$500,000. If the value of the trucks on December 31, 2008 was \$1.5 million, what is the amount of its net investment and its depreciation during 2008? 4) Mary takes 4 minutes to make a sandwich and 6 minutes to mix a cocktail. Her sister Ash takes 4 minutes to make a sandwich and 4 minutes to mix a cocktail. Calculate each sister's opportunity cost. Which of the two sisters has an absolute advantage in making sandwiches? In mixing cocktails? Which of the two has a comparative advantage in making sandwiches? In mixing cocktails?

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