Macro Economics

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1.

Suppose that changes in bank regulations expand the availability of credit cards so that people need to hold less cash. If the central bank does not respond to this event, what will happen to the price level? Use a diagram to assist in answering this question.

2.

Use the loanable funds model to explain what happens to interest rates and investment if a government moves from a balanced budget position to a budget surplus.

3.

Suppose that the T-account for The Open Campus National Bank (OCNB) is as follows: Assets
Reserves $100,000
Loans
400,000
(a) If the central bank requires to hold 5% of deposits as reserves, how much in excess reserves does ONCB now hold? (b) If ONCB decides to reduce its reserves to only the required amount, by how much would the economy's money supply change?

4.

(a) Explain the adjustment process that creates a change in the price level when the money supply increases. (b) Explain with the aid of a diagram what happens to the money supply, money demand, the value of money, and the price level if the central bank increases the money supply. (c) Explain with the aid of a diagram what happens to the money supply, money demand, the value of money, and the price level if people demand less money at every price level.

5.

Liabilities
Deposits $500,000

If the central bank requires banks to hold 5% of deposits as reserves, how much in excess reserves does OCNB now hold?

If OCNB decides to reduce its reserves to only the required amount, by how much would the economy’s money supply change?

Explain the adjustment process that creates a change in the price level when the money supply increases.

Explain with the aid of a diagram what happens to the money supply, money demand, the value of money, and the price level if the central bank increases the money supply.

Explain with the aid of a diagram what happens to the money supply, money demand, the value of money, and the price level if people demand...
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