Macroeconomic

: Essay: Answer the following in complete sentences.

1. Compare your standard of living with that of your parents when they were the age you are now. Ask them or somebody you know around their age to recall where they were living and what they owned. How has the well-being of the typical person changed over the last 25 years? Explain your answer.
2. A friend who knows of your interest in economics comes up to you after reading the latest GDP data and excitedly exclaims, “Did you see that nominal GDP rose from $19 trillion to $19.5 trillion?” What should you tell your friend about this news?
3. In January 2015, the U.S. economy added 257,000 new jobs. Yet the unemployment rate rose from 5.6% to 5.7%. How is this possible?
4. Leisure time is not included in GDP, but what would happen if it was included? Would high-work countries like South Korea fare better in international comparisons of well-being, or worse?
5. Suppose the Fed buy $1 million in Treasury securities from commercial banks. What affects will this action have on the bank’s reserves and the money supply? Use a required reserve ratio of 10%, and assume that banks hold no excess reserves and that all currency is deposited into the banking system.
6. Determine if the following changes affect M1 and/or M2
7. An increase in savings deposits
8. A decrease in credit card balances
9. A decrease in the amount of currency in circulation
10. A conversion of a savings account to a checking account.

Part 2: Problem: answer the following questions. Show your work and clearly indicate your answer to each part of the question.

7. Suppose that you take $150 in currency out of your pocket and deposit it in your checking account. Assuming a required reserve ratio of 10%, what is the largest amount by which the money supply can increase as a result of your action?
8. What is the simple money multiplier if the required reserve ratio is 15%? If it is 12.5%
9. Let’s say you graduate from college and accept a job in 2018. You decide to compare your starting salary with your grandfather’s and mother’s starting salaries. The salaries you compare are:

• You: $80,000 per year beginning in 2018
• Your mother: $50,000 per year beginning in 1983
• Your grandfather: $20,000 per year beginning in 1965

To compare these salaries, you decide to use the CPI, using 1983 as the base year.
a. Why is the CPI a good price index to use for this comparison?
b. Fill in the missing data point in the following table:

1. Convert both your mother’s salary and your grandfather’s salary to 2018 dollars. Enter your answers in the table below.

10. The Ragged Mountain Running Shop (RMRS) sells running shoes and apparel in Charlottesville, Virginia. The owners of RMRS are considering the possibility of opening new retail locations. After careful market analysis, they estimate the expected returns at five new potential locations. These estimates are listed in the following table, along with the amount RMRS would need to borrow in order to open each location:

1. RMRS approaches the Virginia National Bank (VNB) with hopes of borrowing to expand into other locations. Which locations will RMRS open if VNB offers them a loan at an interest rate of 7%? What if VNB offers loans at a lower interest rate of 5%?