1) Suppose that the reserve requirement is 12 percent and the balance sheet of the People's National Bank looks like the accompanying example.

a) What are the required reserves of People's National Bank? Does the bank have any excess reserves?

b) What is the maximum loan that the bank could extend?

c) Suppose that the required reserves were 20 percent. If this were the case, would the bank be in a position to extend any additional loans? Explain.

Assets Liabilities
Vault Cash $20,000 Checking deposits $200,000
Deposits at Fed $30,000 Net worth $15,000
Securities $45,000
Loans $120,000

2) According to the Keynesian view, what fiscal policy actions should be taken if the unemployment rate is high and current GDP is well below potential output?

3) Explain whether the following government policies affect the AD -curve or the SR -AS curve and how a) The government reduces the minimum nominal wage. b) The government increases Temporary Assistance to Needy Families (TANF) payments, government transfers to families with dependent children. c) To reduce the budget deficit, the government announces that households will pay much higher taxes beginning next year. d) The government reduces military spending