read each question very carefully to ensure your full comprehension of the question. You are asked to provide a full explanation of all mathematical problems, including graphs if required. All short answers must be in full, complete sentences — bullet points are not acceptable.You may complete the assignment by hand or use word processing software to complete this assignment, as you prefer. You may use Excel, if you wish, in solving mathematical problems. However, please do not submit any Excel spreadsheets. If Excel is used, you are expected to display and summarize results within your assignment paper.

Econ 102 – Assignment III
Please read each question very carefully to ensure your full comprehension of the question. You are asked to provide a full explanation of all mathematical problems, including graphs if required. All short answer questions must be in full, complete sentences – bullet points are not acceptable.
Questions cover content in Modules four up to and including nine.
Questions
1 – The Bank of Speedy Creek has chosen the following initial balance sheet:
a) Based on the Bank of Speedy Creek’s initial balance sheet, what is its desired reserve ratio?
Huck Finn comes along and deposits $10.
b) After Huck’s deposit, but before any other actions occur, what is the effect on the total amount of money in the economy?
c) After Huck’s deposit, but before any other actions occur, what is the effect on the total amount of currency and deposits in the economy?
2 – a) What is the quantity theory of money?
b) According to the quantity theory of money, what is the effect of an increase in the quantity of money on the price level, real GDP and the velocity of circulation?
c) If the GDP is $2,000 billion, the price level is 100, and the velocity of circulation is 5, what is the quantity of money?
3 – a) Given the Canadian price level P, the foreign country price level P*, and the nominal exchange rate E in foreign currency per Canadian dollar, what does the real exchange rate (RER) equal?
b) Initially the exchange rate between the South Korean won and the Canadian dollar is 950 won per dollar. If the exchange rate rises to 1,000 won per dollar and the Canadian and South Korean price levels do not change, then in the short run what is the effect on the real exchange rate?
c) If the price level in Canada is 120, the price level in South Africa is 140, and the exchange rate is 7 South African rands per dollar, then what is the real exchange rate?
4 – a) Use the AS-AD model to explain how Canada’s declining business confidence can change the short-run equilibrium real GDP and price. Provide a supporting graph.
b) Use the AS-AD model to explain how Canada’s economy can adjust (from the declining business confidence in part a) in the long-run to restore full-employment equilibrium. Provide a supporting graph.
5 – The following event has occurred at times in the history of Canada:
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“The government increases its expenditure on goods and services in a time of war or increased international tension.”
a) Explain if the event changes short-run aggregate supply, long-run aggregate supply, aggregate demand, or some combination of them.
b) Explain the effects of the event on real GDP and the price level, starting from a position of long-run equilibrium.
6 – Use the figure below to answer the following questions.
Figure A.1
a) Is the economy in an inflationary gap or a recessionary gap at point B?
b) What is the level of real GDP when the economy is at full employment?
c) If the aggregate demand curve is AD1, what is the level of real GDP?
d) What is the level of potential GDP?
7 – a) What determines the demand for loanable funds and what makes it change?
b) What determines the supply of loanable funds and what makes it change?
8 – The Reserve Bank of New Zealand signed an agreement with the New Zealand government in which the Bank agreed to maintain inflation inside a low target range. Failure to achieve the target would result in the governor of the Bank (the equivalent of the chairman of the Fed) losing his job.
a) Explain how this arrangement might have influenced New Zealand’s short-run Phillips curve.
b) Explain how this arrangement might have influenced New Zealand’s long-run Phillips curve.
9 – a) If Canada cracks down on illegal immigrants and returns millions of workers to their home countries, explain in words what happens to:
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– Canadian potential GDP
– Canadian employment
– The Canadian real wage rate
b) In the countries to which the immigrants return, explain in words what happens to:
– Potential GDP
– Employment
– The real wage rate
10 – You are given the following information about the Canadian economy. Autonomous consumption expenditure is $50 billion, investment is $200 billion, and government expenditure is $250 billion. The marginal propensity to consume is 0.7 and net taxes are $250 billion. Net taxes are assumed to be constant and not vary with income. Exports are $500 billion and imports are $450 billion.
a) What is the consumption function in billions of dollars?
b) What is the equation of the AE curve in billions of dollars?
c) What is the equilibrium expenditure?