PROBLEM SET 4

Data

DI	C	S	I	C + I	G	C+I+G	XN	TE
0	50		50		50		50
100	100		50		50		50
200	150		50		50		50
300	200		50		50		50
400	250		50		50		50
500	300		50		50		50

DI disposable income, C Consumption, S Savings, I Investment, G Government Expenditure, XN Net exports, and TE Total Equilibrium. Please note that TE is also referred to as GDP or Income. So TE or Y = C + I + G + XN

Calculate S, C + I, C + I + G, C + I + G + XN for each level of disposable

income.

Calculate equilibrium using all sectors (TE).

What would the new equilibrium be if I was increased to 100 instead of 50? What would this mean to the economy?

Assume the reserve ratio is 10%

Formula: Potential Expansion Deposits = 1/Reserve Ratio x Excess Reserves

County National Bank

A	L
Reserves 20,000	100,000 Deposits

ER = ______________________ Potential Expansion _____________________

FED (Federal Reserve Bank). buys a $10,000 bond from bank. What is the potential impact on MS (Money Supply)?

FED. buys a $10,000 bond from bank customer. What is the impact on MS?

Is there a difference between 2 and 3? Why?

Assume money supply rule. Growth in Q is 5%; growth in V is 2%. How much should the MS grow to keep P constant? Assume MV = PQ