Assignment

1. In June 2008, a bank saw a 5% drop in assets, a 62.5% drop in capital, but no change in liabilities_

(a) How much was the bank's leverage ratio at the beginning of June 2008?
(b) Did the bank's leverage ratio increase, decrease, Or stay unchanged in June 2008?
(c) In fact, how much was the bank's leverage ratio at the end of June 2008?

2. Consider an economy where currency is 20 billion pesos which constitutes 2.5% of the money supply. The monetary base is 9995 billion pesos.

(a) Calculate the currency-deposit ratio.
(b) Calculate the money multiplier.
(c) If the Central bank requires each bank to keep 10% of deposits as reserves, calculate banks' excess reserves.

3. How would the money supply change (increase, decrease, or stay the same) and why (because of an increase, decrease, or no change in the monetary base, reserve-deposit ratio, or currency-deposit ratio) if:

(a) the Fed increases the discount rate
(b) the Fed increases the rate it pays on bank's required reserves, but decreases the rate it pays on excess reserves
(c) Bank deposit insurance is eliminated

4. An economy with 6,336 machines and 110 workers has a production function Y = 3K^αL^1-α, where 0 < α < 1 Without any government intervention, CAPITAL income is 1/3 of total income. The government, however, intervenes and seta a minimum real wage of 8. Find the unemployment rate.

5. A closed economy (NX = 0) without government (G = T = 0) has a production function Y = K^1/4L^3/4. Capital depreciates M a rate of 3 percent per year. Workers spend 76 percent of their income each year. Investment adds up to the capital stock which is available for production next mar. Assume that capital per worker is 50625 at the beginning of 2017 and the number of workers stays the same each mar.

(a) Find output per worker, consumption per worker, investment per worker, and depreciation per worker in 2017. How much will capital per worker be at the beginning of 20182

(b) Find the steady-state capital per worker, output per worker, consumption per worker, investment per worker and depreciation per worker.

(c) Assume that the economy is at its steady state

(i) Find the marginal product of capital.

(ii) If the government wishes to maximize consumption per worker in the (very) long run, should they increase or decrease the saving rate? Explain.

(iii) Would the current generation approve of the change in the saving rate discussed m (u)? Explain.