1. Consider the above diagram. a) On the upper panel … what (variable) is shown on the horizontal axis (how should it be labelled)? b) On the lower panel … what is shown on the horizontal axis? c) On the upper panel … what is shown on the vertical axis? d) On the lower panel … what is shown on the vertical axis? e) Is P2 a higher or lower value than P1? 2. Using the data below, Disposable Income (Yd) $0 100 200 300 400 Consumption (C) $50 100 150 200 250 a) find the equation for the consumption function. b) What is the value of the marginal propensity to consume c) What is the value of the simple multiplier? 3. The balance sheet below is for a Canadian chartered bank. Assume the desired reserve ratio is 20 percent. All figures are in billions. Assets Liabilities and net worth Cash Reserves $51 Demand Deposits $140 Securities 100 Capital Stock 130 Loans 109 Property 10 a) How much excess reserves does this bank have? b) If this bank decides to make loans for the full amount of its excess reserves what is the amount by which this single chartered bank can increase its loans. c) What is the value of the money multiplier (show how you calculated this)? d) If this bank decides to make loans for the full amount of its excess reserves what is the amount by which the banking system can increase loans. 4. Answer the following questions using the aggregate expenditures model of the economy described below. C = 100 + .8Yd T = 0.25Y Ia = 68 Ga = 78 Xa = 54 M = .1Y (a) What are the marginal propensity to consume ____________, the marginal tax rate __________, and the marginal propensity to import________? (b) What is the equilibrium level of real GDP? (show your work) …
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