Download Understanding Essential Economics Assignment

EconomicAnalysis Assignment
In order to gain an understanding of economics from your first semester, you are to
complete an assessment over the readings from Introduction to Economics I, Introduction
to Economics II, Paul Volcker case, and the 2007-2008 Financial Crisis case.This
assignment will contain 3essay type questions for you to complete worth approximately
33.33 points each. Please include relevant graphs and/or illustrations within this
document asno attachments will be graded. Your graphs must be your own and not
taken from a website or a PowerPoint presentation. Please preparein a word document
and the graphs can be made using Word drawing function, excel, or any graphing
software you feel comfortable with. The completed assignment should be saved
asEconAssgn_YourlastnameYourfirstinitial. When you are ready to submit your
assignment, select Economics Analysis Assignment and attach your word file.
Place your answer below each question in the space provided; fully answer the
questions using economic theory, facts, and references where needed making sure to cite
properly based on either MLA or APA style format. Your answers (NOT THE
QUESTIONS or RUBRIC BELOW) are to be submitted to turn-itin.com (see below
for instructions). Then, after checking the accuracy and originality ofyour answers
through the turn-it-in.com analysis, correct for any inaccuracies (aswell as properly
citing references) before submitting to Moodle. Please make sure that references are
included both internally and externally as no research paper is complete without citing
facts from outside sources.
Turn-it-in Instructions: Youranswersmust be submitted to turnitin.com for self-review
prior to submission. Please visit http://www.turnitin.com and log-in using a created
registration id. Your class is EMBA Class of 2014 Economics. “For students to enroll in
this class, they will need both the enrollment password:Econall4Uand a unique class
ID: 5507736. Enter the class, enter the assignment (Economic Analysis), and click the
submit paper button.”
This is an individual assignment and intra-team discussions and collaboration on
specific questions contained in this assignment is a violation of the KSU academic
dishonesty policy.
1. The following is a simplified balance sheet for Ni Mia Bank in the United States.
Assets
Required reserves $10,000
Excess reserves $5,000
Customer loans $85,000
Government securities (bonds) $20,000
Liabilities
Demand deposits $100,000
Owner’s equity $0
(a) Based on Ni Mia Bank’s balance sheet, what is the reserve requirement?
(b) Assume that Luis withdraws $5,000 in cash from his checking account.
(i) By how much will the bank’s reserves change based on Luis’ withdrawal?
(c) Based on the reserve requirement calculated above and returning to the balance sheet totals
before Luis’ withdrawal, assume that Debbie deposits $1000 of cash from her pocket into her
checking account. (i) What is the immediate impact of this transaction on the money supply?
Explain. Now, calculate each of the following: (ii) The maximum dollar amount the commercial
bank can initially lend (iii) The maximum increase in the money supply that will be generated
from total change in demand deposits in the banking system (iv) The maximum change in the
money supply.
(d) When the Federal Reserve sells bonds, what will happen to the price of bonds in the open
market?Explain. Using a correctly labeled graph of the money market, show how the openmarket sale of these bonds will affect the money supply and the money demand.
(e) Suppose that the Federal Reserve purchases $10,000 worth of bonds from Ni Mia Bank. What
will be thechange in the dollar value of each of the following immediately after the purchase?
(i) Excess reserves
(ii) Demand deposit
(iii) Calculate the maximum amount that the money supply can change as a result of the $10,000
purchase ofbonds by the Federal Reserve.
(f) In recent years, the Federal Reserve has made targeting the federal funds rate a main focus of
its monetary policy. Define the federal funds rate. If the Federal Reserve wants to
decrease the federal funds rate, what open-market operation would be appropriate?
Assume that the Federal Reserve’s action results in an increasing inflation rate of up to
6% from an initial 4%; what would be the impact of the open-market operation on the
real rate of interest? Explain. Using a correctly labeled graph of the money market, show
how this open-market operation will affect each of the following: (i) Money supply (ii)
Interest rate. Now assume that the Federal Reserve decides to target an inflation rate of
3%. What open-market operation should the Federal Reserve undertake? Indicate the
effect of the open-market operation (that you indicated above) on the nominal interest
rate.
2. The outputs and prices of goods and services in Country X are shown in the table below.
2010 Quantity
Food
Clothes
Entertainment
10
8
3
2010 Price
(base year)
$4.50
$6
$4
2011 Quantity
2011 Price
12
13
4
$4.50
$10
$5
(a) Assuming that2010 is the base year, calculate each of the following:
(i) The nominal gross domestic product (GDP) in 2011
(ii) The real GDP in 2011
(b) If in one year the price index is 50 and in the next year the price index is 55, what is the rate
of inflationfrom one year to the next?
(c) Let’s say that the US’s GDP was $260 billion in 1980 and $325 billion in 1990.
Both figures were calculated as usual in term of market prices for the year involved. The
price index rose from 100 in 1980 to 130 in 1990. Using 1980 as the base year, what
happened to real output from 1980 through 1990? In terms of 1980 prices, the 1990 GDP
would be? The overall rate of inflation during the ten years is approximately? Show all
work.
(d) Now suppose that nominal GDP in 1998 totals $8475 billion and rises to $12.5 trillion
ten years later for the United States. The GDP deflator for 1998 is 1.85 and for 2008 is
2.75, in what year is real GDP greater? By how much? How did you arrive at this
conclusion? Show all work and fully explain your reasoning. Now consider the following
information for the U.S.: During 2004, consumption expenditures increased by $13.5
billion, gross private domestic investment increased by $5.8 billion, and government
expenditures declined by $10.4 billion. In addition, the country experienced a trade
deficit of $2.9 billion. Did the U.S.’s GDP increase or decrease during this year? By how
much? Show all work and fully explain your reasoning.
Based on the Paul Volcker case and the 2007-2008 Financial Crisis case, please answer the
following questions:
3. (a) What were the causes of the 1978-1979 banking crisis?
(b) Discuss the actions of Paul Volcker and the Federal Reserve based on theiroperating
procedureof 1979 and monetary decision making policies enacted to combat the banking system
situation of the time. What effects did those actions have on the banking system? Did Volcker
cause the recession of 1980? Fully explainand provide sound economicanalysis (theory and
facts). Pleasesite references where appropriate and addany corresponding charts and graphs
withinthis document.
(c) What were the causes of the 2007-2008 financial crisis?
(d) Discuss the actions of Ben Bernanke and the Federal Reserve based on their operating
procedure of 2008 and monetary decision making policies thereafter enacted to combat the
banking system situation of the current time. What effects did those actions have on the banking
system? Did Bernanke cause the recession of 2009? Fully explainand provide sound
economicanalysis (theory and facts). Pleasesite references where appropriate and addany
corresponding charts and graphs withinthis document.