Assignment due; 16th September, 2019.

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1. What are injection and withdrawals? What happens when withdrawals are more than
injections?
2. In equilibrium savings are equal to investment. Show how the aggregate
expenditure/demand changes when there is a fall in investment demand?
3. Suppose the consumption function is C=0 . 8Y and planned investment is 40. Draw a
diagram showing aggregate demand schedule? If actual output is 100, what unplanned
actions will occur? What is equilibrium output?
4. How do banks create money from a single deposit of K800?
5. Suppose the banks initially wish to hold reserves R equal to 1% of the deposits that they
provide, and the general public wish to hold cash equal to 2% of the deposits they hold. The
monetary base is H=C+R, and broad money is cash in circulation plus bank deposits. What is
the money multiplier and bank deposit multiplier?
6. Explain how central bank can control money?
7. Explain what happens when the money market is not in equilibrium? If interest rates are
below equilibrium
8. Derive the IS and LM curve. What policy mix can government implement to change interest
rates? and change output