Answer the questions( show your work or explain your reasoning).
- In 2016, a country’s GDP is $214.8 billion. If the economy experiences 4% economic growth over each of the next two years, what will the be the value of the country’s real GDP?
- You have been hired by a country’s government to evaluate the long-run impact of the following. Describe the impact of each and include any relevant diagrams to illustrate your answers.
- A proposal to exempt savings from all taxes. How will this affect the equilibrium in the loanable funds market?
- An increase in income taxes. How will this affect the equilibrium in the labor market and the value of real GDP?
- The Fed buys $100,000 in bonds from Warren Buffett. Warren takes the cash he receives from the Fed and deposits it in the First National Bank of Omaha. Assume that the reserve ratio is 20% and that no one holds cash. (Give numerical answers.)
- What is the value of the money multiplier?
- Show the effect of this transaction on the balance sheet of the First National Bank of Omaha. Assume the bank has hadtime to make any desired adjustments to its balance sheet after receiving the deposit.
- What will be the change in the M1 money supply that will eventually result from the Fed’s open market purchase.