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Unit 7
 
instructions
Complete the questions below that are based on your chapter readings. Submit your answers in a Microsoft Word document (no PDFs) by 11:00 p.m. on Sunday of Unit 8.

  1. Use the following assumptions for this question. The commercial banking system has a target reserve ratio of 5% and there is no cash drain. A new immigrant to the country makes a cash deposit of $1,000. In the following table show how deposits, reserves, and loans change as the new deposit permits the banks to “create” money.
Round Δ Deposits Δ Reserves Δ Loans
First      
Second      
Third      
Fourth      
Fifth      
    1. Complete the entire table.
    2. You have now completed the first five rounds of the deposit-creation process. What is the total change in deposits so far as a result of the single new deposit of $1000?
    3. This deposit-creation process will go on forever, but it will have a finite sum. In the text, we showed that the eventual total change in deposits is equal to 1/v times the new deposit, where v is the target reserve ratio. What is the eventual total change in deposits in this case?
    4. What is the eventual total change in reserves? What is the eventual change in loans?
    5. The diagram below shows the demand for money and the supply of money.
    1. Explain why the Money Demand Curve is a downward sloping curve.
    2. Suppose the interest rate is at iA. Explain how firms and households attempt to satisfy their excess demand for money. What is the effect of their actions?
    3. Suppose the interest rate is at iB. Explain how firms and households attempt to dispose of their excess supply of money. What is the effect of their actions?
    4. Now suppose there is an increase in the transactions demand for money because of growth in real GDP. Beginning at i*, explain what happens in the money market. How is this shown in the diagram?

Unit 10
 
Unit 10 Exercise
Due no later than 11:00 p.m. on Sunday of Unit 10
Worth 5% of final grade
Note: For time management purposes, students are strongly advised to submit their assignments by the due date above, relative to their local time zone. Late penalties, however, will not be applied until after 8:00 a.m. Atlantic Time the following day.
 
Late Submission Policy
 
This assignment is subject to the Late Submission penalty policy, namely 5% per day for three days.
This page will close and will not allow further submissions after this Late Submission period has expired.
In the event of an emergency preventing you from submitting within this time frame, special permission must be obtained from your instructor. Documentation substantiating emergency is required. In such a circumstance, if the extension is granted, the professor will reopen the submission function for you on an individual basis.
Please do not email your submissions to your professor, either before or after the due date; all coursework should be submitted through the online course (Moodle).
Objectives
 
The purpose of the Unit Exercises is to assess the student’s ability to apply the economics concepts learned in the unit to practical problem-solving scenarios.
 
Instructions
 
Complete the questions below that are based on your chapter readings. Submit your answers in a Microsoft Word document (no PDFs) by 11:00 p.m. on Sunday of Unit 10.
 

  1. a. What is fiscal policy? What kind of fiscal policy is needed to reduce unemployment problem?
  2. What is monetary policy? What kind of monetary policy is needed to fight inflation problem?

 

  1. Write an essay on debt and deficit and include answers to the following in your essay:

 
What is budget deficit and how is it related to Government debt?
What is cyclical adjustment to deficit and how does it help to understand the stance of fiscal policy?
What is crowding out?  How does budget deficit crowd out investment?
Why is a high level of government debt is a matter of concern?
 
 

Unit 7
 
instructions
Complete the questions below that are based on your chapter readings. Submit your answers in a Microsoft Word document (no PDFs) by 11:00 p.m. on Sunday of Unit 8.

  1. Use the following assumptions for this question. The commercial banking system has a target reserve ratio of 5% and there is no cash drain. A new immigrant to the country makes a cash deposit of $1,000. In the following table show how deposits, reserves, and loans change as the new deposit permits the banks to “create” money.
Round Δ Deposits Δ Reserves Δ Loans
First      
Second      
Third      
Fourth      
Fifth      
    1. Complete the entire table.
    2. You have now completed the first five rounds of the deposit-creation process. What is the total change in deposits so far as a result of the single new deposit of $1000?
    3. This deposit-creation process will go on forever, but it will have a finite sum. In the text, we showed that the eventual total change in deposits is equal to 1/v times the new deposit, where v is the target reserve ratio. What is the eventual total change in deposits in this case?
    4. What is the eventual total change in reserves? What is the eventual change in loans?
    5. The diagram below shows the demand for money and the supply of money.
    1. Explain why the Money Demand Curve is a downward sloping curve.
    2. Suppose the interest rate is at iA. Explain how firms and households attempt to satisfy their excess demand for money. What is the effect of their actions?
    3. Suppose the interest rate is at iB. Explain how firms and households attempt to dispose of their excess supply of money. What is the effect of their actions?
    4. Now suppose there is an increase in the transactions demand for money because of growth in real GDP. Beginning at i*, explain what happens in the money market. How is this shown in the diagram?

Unit 10
 
Unit 10 Exercise
Due no later than 11:00 p.m. on Sunday of Unit 10
Worth 5% of final grade
Note: For time management purposes, students are strongly advised to submit their assignments by the due date above, relative to their local time zone. Late penalties, however, will not be applied until after 8:00 a.m. Atlantic Time the following day.
 
Late Submission Policy
 
This assignment is subject to the Late Submission penalty policy, namely 5% per day for three days.
This page will close and will not allow further submissions after this Late Submission period has expired.
In the event of an emergency preventing you from submitting within this time frame, special permission must be obtained from your instructor. Documentation substantiating emergency is required. In such a circumstance, if the extension is granted, the professor will reopen the submission function for you on an individual basis.
Please do not email your submissions to your professor, either before or after the due date; all coursework should be submitted through the online course (Moodle).
Objectives
 
The purpose of the Unit Exercises is to assess the student’s ability to apply the economics concepts learned in the unit to practical problem-solving scenarios.
 
Instructions
 
Complete the questions below that are based on your chapter readings. Submit your answers in a Microsoft Word document (no PDFs) by 11:00 p.m. on Sunday of Unit 10.
 

  1. a. What is fiscal policy? What kind of fiscal policy is needed to reduce unemployment problem?
  2. What is monetary policy? What kind of monetary policy is needed to fight inflation problem?

 

  1. Write an essay on debt and deficit and include answers to the following in your essay:

 
What is budget deficit and how is it related to Government debt?
What is cyclical adjustment to deficit and how does it help to understand the stance of fiscal policy?
What is crowding out?  How does budget deficit crowd out investment?
Why is a high level of government debt is a matter of concern?