Homework #4 : Week #9
Question 5. (10 points) Checkpoint Question 26-1-4.
“1. Elaine wants to buy and operate an ice-cream truck but doesn’t have the financial resources to start the business. She borrows $10,000 from her friend George, to whom she promises an interest rate of 7 percent, and gets another $20,000 from her friend Jerry, to whom she promises a third of her profits. What best describes this situation?
(a) George is a stockholder, and Elaine is a bondholder.
(B) George is a stockholder, and Jerry is a bondholder.
(c). Jerry is a stockholder, and Elaine is a bondholder.
(d). Jerry is a stockholder, and George is a bondholder.”
- “If the government collects more in tax revenue than it spends, and households consume more than they get in after-tax income, then
- private and public saving are both positive.
- private and public saving are both negative.
- private saving is positive, but public saving is negative.
- private saving is negative, but public saving is positive.
“3. A closed economy has income of $1,000, government spending of $200, taxes of $150, and investment of $250. What is private saving?
- $100″
- $200
- $300
- $400
- If a popukar TV show on personal finance convinces Americans to save more for retirement, the _ curve for loanable funds would shift, driving the equilibrium interest rate_.
- a) supply, up
- b) supply, down
- c) demand, up
- d) demand, down
Question 6. (10 points)
Explain the difference between saving and investment as defined by a macroeconomist. Which of the following situations represent investment and which represent saving? Explain.
- Your family takes out a mortgage and buys a new house.
- You use your $200 paycheck to buy stock in AT&T.
- Your roommate earns $100 and deposits it in his account at a bank.
- You borrow $1,000 from a bank to buy a car to use in your pizza delivery business.
Question 7. (10 points) Suppose GDP is $8 trillion, taxes are $1.5 trillion, private saving is $0.5 trillion, and public saving is $0.2 trillion. Assuming this economy is closed, calculate consumption, government purchases, national saving, and investment. ”
Question 8. (20 points) Suppose that the T-account for First California Bank is as follows.
| Assets | Liabilities | ||
| Reserves | $100,000 | Deposits | $500,000 |
| Loans | 400,000 | ||
- If the Fed requires banks to hold 10 percent of deposits as reserves, how much in excess reserves does First California now hold?
- Assume that all other banks hold only the required amount of reserves. If the Fed sells $20,000 Treasury bond to First California, what is the amount of reserves in the T-account of First California after the Fed’s sale of the Treasury bond? As a result of the Fed’s sale of $20,000 Treasury bond, by how much would the economy’s money supply change? Is the change upward or downward direction?
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