Section I

Use the information set out in the tables below about the economy of Athabasca.

Question 1 (1 point)

Calculate the quantity of labor employed, the real wage rate, and potential GDP.

Question 2 (1.5 points)

If the labor force participation increases, explain how employment, the real wage rate, and potential GDP change.

Section II

Question 3 (1 point)

Suppose that banks had deposits of $500 billion, a desired reserve ratio of 4 percent and no excess reserves. The banks had $15 billion in notes and coins. Calculate the banks reserves at the central bank.

Question 4 (1.5 points)

If the velocity of circulation is growing at 1 percent a year, the real inter- est rate is 2 percent a year, the nominal interest rate is 7 percent a year, and the growth rate of real GDP is 3 percent a year, calculate the inflation rate, the growth rate of money, and the growth rate of nominal GDP.

\begin{tabular}{|c|c|c|c|c|} \hline \multicolumn{2}{|c|}{ Production function } & \multicolumn{3}{|l|}{ Labor market } \\ \hline Laborhours(millions) & RealGDP(millionsof2009dollars) & Realwagerate(2009dollarslab & Quantityofbordemanded & Quantityoflaborsupplied \\ \hline 0 & 0 & per hour) & (millions of ho & urs per year) \\ \hline 1 & 10 & 10 & 1 & 5 \\ \hline 2 & 19 & 9 & 2 & 4 \\ \hline 3 & 27 & 8 & 3 & 3 \\ \hline 4 & 34 & 7 & 4 & 2 \\ \hline 5 & 40 & 6 & 5 & 1 \\ \hline \end{tabular}