Review problems

•	Assume the Federal Reserve lowered the required reserve ratio to 5%. If you deposit 20,000 dollars in your bank:
•	What is the initial impact of your deposit to your banks reserve? 20,000
•	What is the required reserve amount of your deposit that your bank must keep?  1,000  ( 20,000x.05)
•	What is the maximum change to Money supply from your deposit? 380,000  ( 1/.05=20)= dem      dem x excess    20x 19,000= 380,000)
•	What is the maximum change in deposits?400,000 ( 20x 20,000)
•	Draw an Money Market graph showing the impact of the Federal Reserve actions
•	Draw a Loanable Funds graph showing what will happen to real interest rates.

•	Assume the Federal Reserve sell 5,000 dollars worth of bonds.  The required reserve is 10%
•	What is the required reserve amount of the bond that your bank must keep? 0 ( a bond is not a deposit, so you do not need to hold any in required reserve
•	What is the maximum change to Money supply from your deposit? 50,000 ( 1/.10=10  so 10x5,000)
•	Draw an Money Market graph showing the impact of the Federal Reserve actions
•	Draw a Loanable Funds graph showing what will happen to real interest rates.

•	Assume the United States has 100,000 people in the labor force with 5,000 people categorized as unemployed, a real interest rate of 3%, an nominal interest rate of 6%, and a MPC of .80
•	Draw a SRPC with LRPC, use the relevant numbers to represent where you are on the curve.
•	Draw an AS/AD graph showing current equilibrium. 
•	Assume the government increase spending by 200 million, how much would GDP increase by?1 billion dollars ( 1/MPS= 1/.20= 5 sor 5 x 200mil)
•	Show on your AS/AD graph the impact on PL and Y  
•	Show what will happen to nominal interest on a Money Market graph 
•	Show what will happen to real interest rates on a Loanable Funds graph