2.) In a simple economy (assume there are no taxes; thus, Y is disposable income
ID: 1090999 • Letter: 2
Question
2.) In a simple economy (assume there are no taxes; thus, Y is disposable income), the consumption is C=50+0.80 Y. The current level of real GDP is $3000.
At this level of real GDP, consumption will be $___, and savings will be $___. If GDP were to increase by $1000, consumption would increase by $___. (Round off response to nearest dollar.)
At a real GDP level of $3000, the average propensity to conumer is $___, and the average propensity to save is ___. (Round off response to nearest dollar.)
11.) In the short run, if the economy has a recessionary gap, an increased government deficit resulting from higher government spending or lower taxes is most likely to :
a) increase aggregate demand, which will move the economy toward full employment real GDP
b) have no effect on aggregate demand or real GDP after direct and indirect offsets are counted
c) increase aggregate demand, raising prices and creatring an inflationary gap
d) decrease aggregate demand, reducing prices and increasin the recessionary gap
14.) The Federal reserve purchases $9 million in uS Treasury bonds from a bond dealer, and the dealer's bank credits the dealer's account. The required reserve ratio is 17 percent , and the bank typically lends any excess reserves immediately. Assuming that no currency leakage occurs, calculate how much much will the bank be able to lend to its customers following the fed's purchase. $ __ million. (round off to 2 decimal points)
18.) According to the quantity theory of money, the prices, a -3% change in the money supply, holding other variables constant leads to a
a) -3% changee in real GDP
b) -3% change in the interest rate
c) -3% change in the price level
d) a greater than -3% in real GDP
24. Over the course of a year, a nation tracked its foreign transactions and arrived at the following amounts:
Merchandise exports 500
service exports 75
net unilateral transfers 10
domestic assets abraod (capital outflows) -200
foreign assets at home (Capital inflows) 300
changes in official reserves -35
merchandise imports 600
service imports 50
This nations' blance of trade is ______
Its current account balance is ______
The nation's capital account balance is _____
27. Major discoveries of the highest-quality dia-monds ever found occur in Russia andCentralAsia, causing a significant decline in purchases ofSouth African diamonds. Moreover, assume a floating exchange rate.
Describe how the market for the rand is impacted by this event. Will demand shift to the left? Will supply remain the same? Or will supply change?
Explanation / Answer
2. Given Y=3000 and consumption function to be C=50+0.8Y
consumption is C=50+0.8*3000=$2450
savings is Y-C=3000-2450=$550(or -50+0.2Y=550)
If GDP were to increase by $1000 then increase in C=0.8*1000=$800
Average propensity to consume is C/Y=2450/3000= 0.82
Average propensity to save is S/Y=550/3000=0.18
11. A increase aggregate demand, which will move the economy toward full employment real GDP
14. the bank will be able to lend 0.83*9million=$7.47 million
18. C. c) -3% change in the price level ( beacuse MV=PY)
24. balance of trade (BOT), is the calculation of a country's exports minus its imports.
so in this case Balance of trade is 575(Merchandise exports +service exports) -650(merchandise imports + service imports)= -75 or 75 trade deficit.
Current account balance is Trade Balance + Net Factor Income from Abroad=(-75+300-200+10)=35
capital account balance is capital inflows - capital outflows=300-200=100
27. As the demand for South African diamonds will fall so the export of diamonds from South Africa would decrease.So, demand for Rand( the south african currency) will also decrease i.e it would shift to the left. Supply of Rand would remain same.
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