Fall 2014

Prof. Yankey
ECC
Macroeconomics Final Exam
Please show all work, calculations and box your final numerical answers. Draw all
charts and graphs. Label all graphs fully and use color. Give numerical answers
in the proper units. Explain your answers in your own words, and remember to
put them in essay form. Cite all references. This must be typed, graphs/charts
may be done by hand.
1. a. The following data is for the Obsidian Banking system, whose
slogan is; Money: dont loan today, what you might "reserve
tomorrow! Use the following data to set up a balance sheet; Securities
= $50,000, Demand Deposits = $250,000, Loans = $90,000, Reserves
=$80,000, Capital stock = $100,000 Property = $130,000. Assuming
that the reserve ratio is 25%, use the data to answer the following
questions. (All figures are in billions)
i.
ii.
iii.

iv.

What is the amount of excess reserves in this banking system?

What is the maximum amount that the money supply can be
expanded? (6pts)
If the reserve ratio fell to 15%, what would be the maximum amount
that the money supply can now expand? (4pts.)
Assume that the original data was for a single commercial bank,
which makes a loan of $25,000 and has a check cleared against it for
the amount of the loan; what will be the amounts of its reserves and
demand deposits? Using two separate balance sheets show the
changes before and after the transaction. (8pts.)
Using the original balance sheet (and a reserve ratio of 15%),
assume that the firm now makes a loan for $20,000 and has a check
cleared against it for the amount of the loan; what will be the amount
of its excess reserves? (6pts.)

b. The following data was compiled by the Samantha/Alana/Marina of Its All

About Dah Bass Consulting. Columns 2 and 5 are the AS schedule, while
columns 4 and 5 are the AD schedule. (6pts. each)
(1)
(2)
Price Level Real GDP
220
$2390
200
2390
190
2350
180
2300
160
2200

(3)
AD1
$2100
2200
2250
2300
2400

(4)
AD2
$2200
2340
2350
2400
2500

(5)
Real GDP2
$2490
2490
2450
2400
2300

i.
ii.

What is the equilibrium real GDP and the price level? Suppose that
the AD is now at column 4; what will be the new equilibrium price
level and real GDP? Draw a graph showing the two changes.
Now assume that AS is now at column 5, while AD stays at column
4, what will be the new price level and real GDP? Draw a graph
showing the new results.

3. Given the following data, from the It WasN Me Financial (founded

by Patrice and Jacob), answer the questions. (Show work.)
Interest rate (%)
13
12
11
10

Asset demand
$200
300
400
500

If the transaction demand for money equals 15% of nominal GDP, the
nominal GDP is $5000 billion, and the supply of money is $1050 billion,
what is the equilibrium interest rate? (6pts.)

ii

Calculate the total demand for money at each interest rate. Be sure to
show work and the corresponding interest rates. (4pts.)

iii

If the nominal GDP remains constant, and the money supply is increased
to $1250 billion, what will be the equilibrium rate of interest? (4pts.)

4. The data below was compiled by the Jose and Ana G. of Whoa Pah
GunDamstyl Research Group, showing the supply and demand schedules for
health care.
Quantity
Quantity
Price ($)
Demanded
Supplied
10,000
400
1200
9,000
500
1100
8,000
600
1000
7,000
700
900
6,000
800
800
5,000
900
700
4,000
1000
600
3,000
1100
500
i)

Assume that there is no health insurance in this market. What will

be the equilibrium price and quantity in this market? (4pts.)

ii)

Now assume that health insurance cuts the price of health care by
half (1/2) for the consumer. What will be the new price for the
consumer and the quantity demanded? (4pts.)

iii)

Draw the graph showing the equilibrium price and quantity when
there is no health insurance. (6pts.)

iv)

Suppose that a government subsidy causes the supply of health

care to shift by 200 at every price, what would be the new
equilibrium price and quantity in the absence of health insurance?
Show work draw a new graph showing the changes. (6pts.)

v)

What are some of the problems/criticisms associated with Fiscal

policy? Discuss the problems of timing and one other. (6pts.)

5. a. The table below was compiled by the Federal Reserve Bank

chairperson, Danielle , (aka No Shift!). Columns 3 to 5 show the
supply of money. Dm represents the demand for money.
(All figures are in millions.)
(1)
Interest rate
12%
10
8
6
4

(2)
Dm
$1,600
1,900
2,300
2,600
2,900

(3)
Sm1
$2,300
2,300
2,300
2,300
2,300

(4)
Sm2
$2,600
2,600
2,600
2,600
2,600

(5)
Sm3__
$1,900
1,900
1,900
1,900
1,900

i. Using the data from the table draw the graph. (4pts)
ii. Given the demand for money, what will be the equilibrium interest rate
for each of the different supply of money schedules? You must give the
supply of money as well as the interest rates. (6pts)
iii. Assume the economy was in equilibrium at Dm and Sm1. If Nesrine decides
to change the money supply to Sm2, and the interest rate stays the same,
how much of a shortage or surplus in the money supply will there be? (6pts)
b. International spies; Marcia, Rocio and Sheidy of MANYOSA Inc.,
were engaged in a debate over the merits of trade barrier arguments.
Help them resolve their dilemma by discussing any four arguments for
imposing trade barriers. (I.e. Quotas, etc.) (8pts.)

6. Jocelyn and Walter, of E-Ho-Lay Fiduciaries, were called upon to be an

advisor to the Mejicanos Administration. As part of their first assignment, they
had to:

a. Arrange the following items in the form of a commercial banks balance

sheet, and explain how each might come into being. Capital
stock=$300,000, Reserves=$60,000, Property=$290,000, Checkable
deposits=$150,000, Loans=$60,000, and Securities=$40,000.
b. Assume the balance sheet from a was for the Ikou/Hedde Bank,
whose slogan is Banking Aint Nothing but a G-Thang! Use the data
to answer the following. (Assume the reserve ratio is 30%)
i. What is the amount of excess reserves and by what amount can
the Ikou/Hedde Bank safely expand its loans?(8pts.)
ii. If the bank expands its loan by the amount in (i), its demand
deposits would expand to what amount (if all loans were made to
checking account customers)? (8pts.)
c. What are the four principle tools of monetary policy? Briefly discuss each
one. Explain the two main advantages of monetary policy over
discretionary fiscal policy. (10pts.)
d. Given the following economic problems, what steps would be taken
under discretionary fiscal policy and monetary policy to alleviate them?
(Explain each briefly.) (10pts.)
i. Recession
ii. Inflation

What grade do you believe that you have earned in this course?
Explain in two sentences and put your name at the end.
No fantasy grades, please.