My Compromise

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The First National Bank has reserves of $200,000 and demand deposits equal to $1,500,000. The reserve ratio is 10 percent. How much in excess reserves does the bank now have? What is the maximum amount the bank could currently lend out? try to work it out, and show all work. 

(TCO F) Suppose nominal GDP in 2000 was $8 trillion and in 2001 it was $10 trillion. The general price index in 2000 was 100 and in 2001 it was 105. Between 2000 and 2001 real GDP rose by what percent? Show your work. 

You need to make use of the inflation formula for the GDP deflator here and compare results between the two years. 

For 2000: 

100 = [$8 T / Real GDP] x 100 This is just the formula for the GDP Deflator, i.e.: 

GDP Deflator = [Nominal GDP / Real GDP] x 100 

So, Real GDP must equal $8 T. You could also recognize that Real GDP and nominal GDP are the same in the base year. 

For 2001: 

105 = [$10 T / Real GDP] x 100 

1.05 = [$10 T / Real GDP] 

Real GDP = $10 T / 1.05 

So, Real GDP must equal $9.524 T. 

The percentage increase in Real GDP will then be [(9.524 - 8) / 8] x 100 = (1.524/8) x 100 = 19.05% 

You’re simply using a general formula here for any percentage change. In this case:  % change in Real GDP = {[current value for Real GDP (2001) – old value(2000)] / old value} x 100 

Therefore Real GDP increases by 19.05% between 2000 and 2001.

Grading Summary|

These are the automatically computed results of your exam. Grades for essay questions, and comments from your instructor, are in the "Details" section below.| Date Taken:| 3/18/2012| Time Spent:| 2 h , 20 min , 23 secs|

Points Received:| 91 / 100  (91%)|
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Question Type:| # Of Questions:| # Correct:|
Short| 10| N/A|
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Grade Details|

 1.| Question :| (TCO A) There is an increase in the cost of labor for producing bicycles.  (4 pts.) What happens to bicycle supply? 
(6 pts.) What happens to bicycle demand?|
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 | Student Answer:|  | Increase in the cost of labor will decrease in the quantity supply. This is not a demand issue instead a supply issue. demand will not be affected.|  | Instructor Explanation:| Since a change in costs to produce the product is a supply factor, an increase in costs would be expected to decrease bicycle supply.  Remember that supply is a schedule of how many units suppliers are willing to offer at different prices.  When costs rise, the supply curve decreases or shifts to the left.   Since changes in producer costs is not a demand factor, there would be no impact on demand.  |

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 | Points Received:| 10 of 10|
 | Comments:| |
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 2.| Question :| (TCO A)  Digital cameras and memory cards are complements in consumption. The price of digital cameras falls. (4 pts.) What happens to the demand for memory cards? 
(6 pts.) What happens to the demand for digital cameras?|
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 | Student Answer:|  | When the price of digital camera falls, more digital cameras will be bought and therefore the demand for memory cards will rise.|  | Instructor Explanation:| When the price of a complimentary good falls, the demand for the other good rises.  Price of digital cameras falls -- demand for memory cards rises. This tests your ability to distinguish between a change in demand and a change in quantity demanded.  When the price of digital cameras falls THERE IS NO EFFECT ON THE DEMAND for digital cameras.  Only the quantity demanded would change -- rise in this case.  Remember that a change in demand means that THE WHOLE CURVE SHIFTS.   |

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 | Points Received:| 10 of 10|
 | Comments:| |
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 3.| Question :| (TCO A)  The number of corn producers increases.  (4 pts.) What happens to the supply of corn? 
(6 pts.) What happens to the demand for corn?|
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 | Student Answer:|  | The supply of corn will increase and the will decrease the demand for corn.|  | Instructor Explanation:| The supply of corn...
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