Question

1.Suppose the Fed conducts an open market purchase by selling $10 million in Treasury bonds to Wakanda Bank. What will the new balance sheet look like after Wakanda Bank restores its required reserves by reducing its loans? The initial Wakanda Bank balance sheet contains the following information:

Assets: Reserves = $30, Bonds = $50, and Loans = $250

Liabilities: Deposits = $300, and Equity = $30

	Reserves = $20, Bonds = $60, Loans = $260, Deposits = $300, and Equity = $30
	Reserves = $30, Bonds = $60, Loans = $240, Deposits = $300, and Equity = $30
	Reserves = $30, Bonds = $50, Loans = $250, Deposits = $300, and Equity = $30
	Reserves = $30, Bonds = $60, Loans = $240, Deposits = $310, and Equity = $30

2. The central bank increases the money supply by $150 billion, when the velocity of money was 3.5. Now economists are expecting the velocity of money to increase by 30% as a result of the monetary stimulus. What is the total increased nominal GDP?

3. A bank has deposits of $400. It holds reserves of $60. It has purchased government bonds worth $50, and made $300 worth of loans. Set up a T-account balance sheet for the bank, with assets and liabilities. What is the bank's net worth?

4.

Consider nominal GDP is $1800, and the money supply is $500.

a. What is the Velocity?

b. If nominal GDP rises to $2100, but the money supply doesn't change, how has the velocity changed?

c. If GDP falls back to $1800 and the money supply falls to $450, what is the new velocity?

Question 4 options:

	a) Velocity = 3.75, b) Velocity INCREASES by 0.25, c) Velocity = 0.4
	a) Velocity = 3.6, b) Velocity INCREASES by 0.60, c) Velocity = 4.0
	a) Velocity = 3.6, b) Velocity DECREASES by 0.60, c) Velocity = 0.4
	a) Velocity = 3.6, b) Velocity DECREASES by 0.25, c) Velocity = 0.4

Answer 1

Sorry for question 2

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