Lyryx Labs Assignments PDF

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Lab 1 (Question 1)
Name: Ahmad Hashem
Date: 2019-01-19 0:30
Question 1 [21 points]

There are two industries in this economy, producing product A and product B. Provided in the table below are
the quantities produced and the price per unit for 3 different years. Considering Year 1 as the base year, fill in
the blanks in the following table.
Note: For the GDP Deflator entries, please round all answers to 1 decimal place.
Year 1 Year 2 Year 3

Quantity of A (units) 26 26 18
Quantity of B (units) 11 6 7
Price of A ($/unit) 4 4 10
Price of B ($/unit) 14 21 18
Nominal output value of A ($) 104 104 180
Nominal output value of B ($) 154 126 126
Total nominal economy output ($) 258 230 306
Real output value of A ($) 104 104 72
Real output value of B ($) 154 84 98
Total real economy output ($) 258 188 170
GDP deflator 100 122.3 180
Marking:
Nominal output value of A ($)

Congratulations! You have entered the correct answers.
Nominal output value of B ($)

Total nominal economy output ($)

Real output value of A ($)

Real output value of B ($)

Total real economy output ($)

GDP deflator
Total marks for this question: 21
Overall Mark: 21/21

Your mark of 21/21 has been recorded.
DONE
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Lab 1 (Question 2)
Name: Ahmad Hashem
Date: 2019-01-19 1:08
Determine whether each of the following economic events is included in deriving a country's annual GDP.
a) Rent received on a two-bedroom apartment.

is not included
is included
b) Interest on a Southwest Consulting bond.
is not included
is included
c) The monthly allowance a college student receives from home.
is not included
is included
Marking:
(a)
Your answer was : is included.
You have selected the correct answer.
(b)
Your answer was : is included.
(c)
Your answer was : is not included.
Overall Mark: 3/3

DONE
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Lab 1 (Question 3)
Name: Ahmad Hashem
Date: 2019-01-19 1:14

Suppose that in 1986 the total output in a single-good economy was 7,794 chickens. Also suppose that in
1986 each chicken was priced at $16. Finally, assume that in 1994 the price per chicken was $20 and that
25,542 were purchased.
For each of the following parts, assume that 1986 is the base year.
Note: Please round your answers to two decimal places.
a) Determine the GDP Deflator for 1994.
GDP Deflator = 125
b) Determine the percentage growth of real GDP, rose (or fell) between 1986 and 1994.
Note: Enter only the magnitude of the growth rate (positive value).
Percentage Growth of Real GDP = 227.71%
c) Calculate the real GDP for 1986.
Real GDP = $124,704
d) Calculate the real GDP for 1994.
Real GDP = $408,672
Marking:
a)
Your answer was: 125.00
Congratulations! You have entered the correct answer.
b)
Your answer was: 227.71%
c)
Your answer was: $124,704.00
d)
Overall Mark: 12/12

DONE
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Lab 1 (Question 4)
Name: Ahmad Hashem
Date: 2019-01-19 1:19
Suppose GDP is $1,610, consumption expenditure is $1,500, government expenditure is $50, and net
exports are -$20.
a) What is business investment expenditure?
Investment expenditure = $80
b) If exports are $280, what are imports?
Imports = $300
c) In this example, net exports are negative. Could they be positive?
Can net exports be positive? Yes
Marking:
(a)
Your answer was: $80
(b)
(c)
Your answer was: Yes
Overall Mark: 6/6

DONE
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Lab 1 (Question 5)
Name: Ahmad Hashem
Date: 2019-01-19 1:34

You have the following annual data for an economy:
Consumer Price
Labour Force Employment
Year Real GDP ($) Index
(thousands) (thousands)
(2017 = 100)
2019 1,035 105 11,000 10,200
2020 1,135 110 12,200 11,150
2021 1,255 117 13,600 12,450
Note: Keep as much precision as possible during your calculations. Your final answer should be accurate
to at least two decimal places.
(a) What was the rate of growth of real GDP from 2019 to 2020, and 2020 to 2021?
2019 to 2020 9.66 %

2020 to 2021 10.57 %
(b) What was the rate of inflation in 2020 and in 2021?
2020 10 %
2021 17 %
(c) What was the rate of growth of the labour force from 2019 to 2020, and 2020 to 2021?
2019 to 2020 10.91 %

2020 to 2021 11.48 %
(d) What was the rate of growth of employment from 2019 to 2020, and 2020 to 2021?
2019 to 2020 9.31 %

2020 to 2021 11.66 %
(e) What was the unemployment rate in 2019, 2020, and 2021?
2019 7.27 %
2020 8.61 %
2021 8.46 %
Marking:
(a)
Rate of growth of real GDP
(b)
Rate of inflation
10 The correct amount should be 4.76%, however you have not entered this. This will cost you 2 marks.
17 The correct amount should be 6.36%, however you have not entered this. This will cost you 2 marks.
The inflation rate is the persistent increase in consumer price index as a percentage between the given
years.
Consumer Price Index2020 - Consumer Price Index2019 110

For 2020: × 100% = ( - 1) × 100% = 4.76%
Consumer Price Index2019 105
Consumer Price Index2021 - Consumer Price Index2020 117

For 2021: × 100% = ( - 1) × 100% = 6.36%
Consumer Price Index2020 110
You will lose 4 marks for this part.
(c)
Rate of growth of the labour force
(d)
Rate of growth of employment
(e)
Unemployment rate
Overall Mark: 18/22

DONE
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Lab 1 (Question 5)
Name: Ahmad Hashem
Date: 2019-01-19 1:43

Consumer Price
(2016 = 100)
2021 1,169 111 11,600 10,550
2022 1,309 117 12,950 12,050
2023 1,439 127 14,550 13,350
2021 to 2022 11.98 %

2022 to 2023 9.93 %
2022 5.41 %
2023 8.55 %
2021 to 2022 11.64 %

2022 to 2023 12.36 %
2021 to 2022 12.45 %

2022 to 2023 10.79 %
2021 9.05 %
2022 6.95 %
2023 8.25 %
Marking:
(a)
(b)
Rate of inflation
(c)
(d)
The correct amount should be 14.22%, however you have not entered this. This will cost you 2
12.45
marks.
Employment2022 - Employment2021 12,050

For 2021 to 2022: × 100% = ( - 1) × 100% = 14.22%
Employment2021 10,550
Employment2023 - Employment2022 13,350

For 2022 to 2023: × 100% = ( - 1) × 100% = 10.79%
Employment2022 12,050
(e)
Unemployment rate
Overall Mark: 20/22

DONE
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Lab 1 (Question 5)
Name: Ahmad Hashem
Date: 2019-01-19 2:59

Consumer Price
(2017 = 100)
2021 1,024 114 11,100 9,950
2022 1,124 124 12,500 11,750
2023 1,234 129 13,900 12,700
2021 to 2022 9.77 %

2022 to 2023 9.79 %
2022 8.77 %
2023 4.03 %
2021 to 2022 12.61 %

2022 to 2023 11.2 %
2021 to 2022 18.09 %

2022 to 2023 8.09 %
2021 10.36 %
2022 6%
2023 8.63 %
Marking:
(a)
(b)
Rate of inflation
(c)
(d)
(e)
Unemployment rate
Overall Mark: 22/22

DONE
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Lab 1 (Question 6)
Name: Ahmad Hashem
Date: 2019-01-19 1:52

Suppose you are given the following data on incomes and expenditures for the economy of Waterland, in
current prices for factors of production and outputs.
Government expenditure $ 850

Gross operating surplus 630
Net indirect taxes 150
Employment compensation 2,900
Imports 1,100
Gross mixed income 180
Exports 1,000
Investment expenditure 810
Consumption expenditures 2,300
a) What is the value of nominal GDP measured by the expenditure approach?
GDP = $3,860
b) What is the factor income?
Factor income = $3,710
c) What is the value of nominal GDP measured by the income approach?
GDP = $3,860
Marking:
a)
Your answer was: $3,860
b)
c)
Overall Mark: 12/12

DONE
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Lab 1 (Question 7)
Name: Ahmad Hashem
Date: 2019-01-19 2:04

Suppose there is an economy that produces only four goods in one year:
Paper: $7,000
Books: $14,000
Toner: $3,500
Envelopes: $5,000
The production of books requires the following amount of intermediate goods:
Paper: $2,000
Toner: $1,500
The production of envelopes requires the following amount of intermediate goods:
Paper: $3,000
a) Find the total GDP for the economy.
GDP = $23,000
b) Find the value of paper sold as a final good.
Value of paper sold as a final good = $ 2,000
c) Find the value of toner sold as a final good.
Value of toner sold as a final good = $2,000
d) Fill in the values in the following statement. This statement discusses how the deduction of the
intermediate values for paper and toner are related to the value of the GDP you found in (part (a))
If we did not account for the double-counting of paper and toners, the value for
the GDP would have been incorrectly recorded as: $ 29,500 . The value of paper as
intermediate input is $ 5,000 and the value of toner as $ 1,500 . The amount we
double-counted was $ 6,500 . This is why the accurate value of the GDP should be
$ 29,500 - $ 6,500 = $ 23,000 .
Marking:
(a)
(b)
(c)
(d)
You have entered all the entries correctly.
Overall Mark: 13/13

DONE
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Lab 1 (Question 8)
Name: Ahmad Hashem
Date: 2019-01-19 2:09
Suppose the labour force consists of 180 adults, of which 141 are employed.
Note: Keep as much precision as possible during your calculations. Your final answers should be accurate
a) Find the unemployment rate.
Unemployment rate = 21.7%
b) Now suppose 17 of the unemployed workers are so discouraged that they have given up looking for
work. They decide to go back to school full-time. Find the new unemployment rate.
New unemployment rate = 12.22%
c) True or false: "Low unemployment rates imply more people are working".
True
False
Marking:
a)
Unemployment rate
The correct answer was: 21.67%
Number of unemployed people = labour force - number of employed people, so it is equal to 39. The
unemployment rate is 21.67% (39 ÷ 180).
b)
New unemployment rate
The labour force is now 163 (180 - 17), number of employed people is still 141, so number of unemployed
people is only 22 (163 - 141). The new unemployment rate is 13.5% (22 ÷ 163).

c)
Your answer was : False.
Overall Mark: 2/6

DONE
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Lab 1 (Question 8)
Name: Ahmad Hashem
Date: 2019-01-19 2:11
Suppose the labour force consists of 120 adults, of which 76 are employed.
a) Find the unemployment rate.
Unemployment rate = 36.67%
b) Now suppose 10 of the unemployed workers are so discouraged that they have given up looking for
work. They decide to go back to school full-time. Find the new unemployment rate.
New unemployment rate = 30.91%
c) True or false: "Low unemployment rates imply more people are working".
True
False
Marking:
a)
Unemployment rate
b)
New unemployment rate
c)
Your answer was : False.
Overall Mark: 6/6

DONE
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Lab 1 (Question 9)
Name: Ahmad Hashem
Date: 2019-01-19 2:22
Suppose the economy represented by the table below had a population of 24,000 in 2020:
Consumer Price
(2015 = 100)
2018 1,042 113 12,900 12,050
2019 1,152 120 14,450 13,400
2020 1,292 125 16,000 14,800
a) What were the participation and employment rates in the economy in the year 2020?
What is the participation rate in the year 2020? 66.67 %

What is the employment rate in the year 2020? 61.67 %
b) Suppose a mild recession in the year 2020 discouraged some unemployed workers and they stop
looking for work. As a result, the participation rate fell to 65.97 percent. How would the unemployment rate
and the employment rate be affected? Why?
The unemployment rate will: Fall

The employment rate will: Remain unchanged
Marking:
a)
Participation Rate
Employment Rate
b)
Unemployment Rate
Your answer was: Fall
Employment Rate
Your answer was: Remain unchanged
Overall Mark: 8/8

DONE
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Lab 1 (Question 10)
Name: Ahmad Hashem
Date: 2019-01-19 2:28
An economy has two main types of industry. One produces services and the other produces goods.
The service industries produce services for households and businesses with a total market value of
$16,000. The goods industries produce goods for the use of both households and businesses with a total
market value of $18,000. The service industries spend $1,300 on computers and paper and envelopes
supplied by the goods industries. The goods industries spend $1,500 to buy financial, insurance,
advertising, and custodial supplies from the service industries.
Find the final value of each industry and the nominal GDP of the economy. Please make sure your final
answer(s) are accurate to the nearest whole number.
Final value of services industry ($) 14,700

Final value of goods industry 16,500
Nominal GDP of the economy 31,200
Marking:
Final values of industries

Nominal GDP of the economy

Overall Mark: 6/6

DONE
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Lab 1 (Question 11)
Name: Ahmad Hashem
Date: 2019-01-19 2:36
Your solution to the question was :
For all the questions below select the appropriate answer:
a) A rise in wage rates for labour without an increase in labour productivity will:
reduce both nominal and real GDP.
increase nominal GDP with no change in real GDP.
leave both real and nominal GDP unchanged.
increase both real and nominal GDP.
b) To calculate the national unemployment rate you would need data on:
the number of people employed and unemployed.
the number of people aged 15 years and over.
the number of people currently not working and not looking for work.
the number of people currently employed.
c) To measure the current market value of the economy's total output we use:
nominal GDP
current income received by households.
output when prices are held constant
current profits earned by producers of goods and services
d) If the GDP deflator increased by 3 percent while nominal GDP grew by 5 percent:
real GDP would fall by 3 percent.
real GDP would grow by 8 percent.
real GDP would be unchanged.
e) If real GDP in Ourland in 2007 was $1.1 million, when real GDP in 2006 had been $1.0 million, this
means that:
real GDP grew by 10 per cent.
real GDP fell by 11 per cent.
real GDP grew by 1.0 per cent.
prices increased by 10 per cent.
Marking:
(a) Your answer was : reduce both nominal and real GDP.
The correct answer is: increase nominal GDP with no change in real GDP.
You will lose 1 mark for this part.
(b) Your answer was : the number of people currently not working and not looking for work.
The correct answer is: the number of people employed and unemployed.
(c) Your answer was : nominal GDP.

You have answered this part correctly.
(d) Your answer was : real GDP would grow by 2 percent.

(e) Your answer was : real GDP grew by 10 per cent.

Overall Mark: 3/5

DONE
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Lab 1 (Question 11)
Name: Ahmad Hashem
Date: 2019-01-19 2:49
a) Over the period 2004 to 2007 Canadian real GDP:

grew at an annual rate of about 3.0 percent.
declined about 2 percent a year.
grew at an annual rate of about 10 percent.
was unchanged.
b) A basic measure of the standard of living in a country is:

that country's real GDP per capita.
that country's nominal GDP.
that country's real GDP.
that country's nominal GDP per capita.
c) Decisions by producers to hire more factors of production and produce more produce goods and
services:
result in incomes for households that can be used to buy producer's outputs.
contribute to the inflation rate in the economy.
are not related to the expenditure plans of households and businesses.
result in inefficient production and wasted resources.
d) A rise in wage rates for labour without an increase in labour productivity will:
e) If increasing retirements by 'baby-boomers' reduce the annual growth rate of the labour force from 3
percent to 2 percent while employment continues to grow by 2.5 percent:
the unemployment rate will be about 2.5 percent.
the unemployment rate will remain unchanged.
the unemployment rate will fall by about 0.5 percent.
the unemployment rate will increase by about 2 percent.
Marking:
(a) Your answer was : grew at an annual rate of about 10 percent.

The correct answer is: grew at an annual rate of about 3.0 percent.
(b) Your answer was : that country's real GDP per capita.
(c) Your answer was : result in incomes for households that can be used to buy producer's outputs.
(d) Your answer was : increase nominal GDP with no change in real GDP.
(e) Your answer was : the unemployment rate will fall by about 0.5 percent.
Overall Mark: 4/5

DONE
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Lab 1 (Question 11)
Name: Ahmad Hashem
Date: 2019-01-19 2:53
a) To calculate the national unemployment rate you would need data on:
the number of people aged 15 years and over.
the number of people currently not working and not looking for work.
the number of people currently employed.
the number of people employed and unemployed.
b) A rise in wage rates for labour without an increase in labour productivity will:
c) To measure the current market value of the economy's total output we use:
current income received by households.
output when prices are held constant
current profits earned by producers of goods and services
nominal GDP
d) If real GDP in Ourland in 2007 was $1.1 million, when real GDP in 2006 had been $1.0 million, this
means that:
real GDP fell by 11 per cent.
prices increased by 10 per cent.
real GDP grew by 10 per cent.
real GDP grew by 1.0 per cent.
e) If the GDP deflator increased by 3 percent while nominal GDP grew by 5 percent:
real GDP would fall by 3 percent.
real GDP would be unchanged.
Marking:
(a) Your answer was : the number of people employed and unemployed.
(b) Your answer was : increase nominal GDP with no change in real GDP.
(c) Your answer was : nominal GDP.

(d) Your answer was : real GDP grew by 10 per cent.

(e) Your answer was : real GDP would grow by 2 percent.

Overall Mark: 5/5

DONE
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Lab 2 (Question 1)
Name: Ahmad Hashem
Date: 2019-02-02 20:11

Suppose we have the following data for an economy:
Potential
Real GDP Output Gap
Year Output
($ billions) (%)
($ billions)
2000 1,000 1,010 1
2001 1,025 984 -4
2002 1,060 954 -10
2003 1,075 946 -12
2004 1,090 981 -10
2005 1,100 979 -11
2006 1,120 1,008 -10
a) Calculate the output gap for each year in this economy.

Note: Please place your answers in the table above.
b) Plot the output gap in a time series diagram.

Marking:
a)
b)
Plot the Output Gap
Your answer is correct.
Overall Mark: 14/14

DONE
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Lab 2 (Question 2)
Name: Ahmad Hashem
Date: 2019-02-02 20:20
How would an increase in labour productivity (with no change in nominal wages) affect aggregate demand
and short-run aggregate supply?
a) Show the affect by clicking and dragging the appropriate line(s) in the graph below. Select which item
you want to move from the drop down menu at the top of the graph to move that item.
b) How is the equilibrium price level affected?

increases
decreases
indeterminate
c) How is the level of real output affected?

increases
decreases
indeterminate
Marking:
a)
Aggregate Supply
You have correctly indicated that the line should be shifted right.
Aggregate Demand
You have correctly indicated that the line should not be shifted.
b)
Your answer was : decreases.
c)
Your answer was : increases.
Overall Mark: 6/6

DONE
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Lab 2 (Question 3)
Name: Ahmad Hashem
Date: 2019-02-02 20:34

Suppose research has uncovered the following aggregate demand and supply functions for an economy:
AD: P = 200 - 0.1Y
AS: P = 140 + 0.05Y
a) Draw the AD and AS functions to illustrate the short-run equilibrium real GDP and price.
b) What are the short-run equilibrium values for real GDP and the price level from the graph above? Let us
also assume that this short run equilibrium is also the long run equilibrium, that is, Y=YP.
Real GDP = 400

Price level = 160
c) Suppose a fall in demand for new houses reduced the investment component aggregate expenditure,
and reduced AD at each price level by 300. Draw the new AD curve in the graph above.
d) Complete the following paragraph.
To conclude, the fall in AD due to reduced the investment component aggregate expenditure will
create a/an recessionary gap, which will cause unemployment to rise relative to the
natural rate. If the government wants to close this gap, it should increase government
spending and decrease taxes. If the central bank wants to close this gap, it should
decrease interest rates. If neither the government nor the central bank responds to the gap,
input costs such as wages will eventually fall and the AS will shift to the
right to close the gap. This process, however, may take a very long time to complete.
Marking:
(a)
AD
AS
(b)
Real GDP
Your answer was: 400
Price level
(c)
New AD
(d)
You have completed this entire statement correctly.
Overall Mark: 16/16

DONE
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Lab 2 (Question 4)
Name: Ahmad Hashem
Date: 2019-02-02 20:51
a) A rise in the general price level causes a decrease in aggregate expenditure and:
a leftward shift in the aggregate demand curve.
a rightward shift in the aggregate demand curve.
a corresponding increase in the aggregate supply curve.
a movement up to the left along a fixed aggregate demand curve.
b) The aggregate demand curve would shift horizontally as a result of:

a change in autonomous investment expenditure.
a change in the GST.
a change in the general price level.
a change in the money wage rates paid for labour services.
c) Suppose that money wages rates rise faster than labour productivity increases. Other things equal:
the aggregate supply curve will shift up.
the aggregate expenditure curve will shift down.
the aggregate supply curve will shift down.
the aggregate demand curve will shift to the left.
d) The positive slope of the short-run aggregate supply curve shows that:
a lower general price level lowers input prices like money wage rates paid for labour inputs to
production.
a higher general price level leads producers to expand output when input prices remain constant.
a higher general price level increases aggregate demand and output.
a lower general price level raises interest rates.
e) The adjustment over time that eliminates an economy's output gaps depends on:
the flexibility of wage rates and prices in the economy.
the rigidity or wages and prices in the economy.
the rate of net indirect taxation.
the size of potential GDP.
Marking:
(a) Your answer was : a movement up to the left along a fixed aggregate demand curve.
(b) Your answer was : a change in autonomous investment expenditure.

(c) Your answer was : the aggregate supply curve will shift up.
(d) Your answer was : a lower general price level lowers input prices like money wage rates paid for labour
inputs to production.
The correct answer is: a higher general price level leads producers to expand output when input prices
remain constant.
(e) Your answer was : the flexibility of wage rates and prices in the economy.
Overall Mark: 4/5

DONE
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Lab 2 (Question 4)
Name: Ahmad Hashem
Date: 2019-02-02 20:59
a) If the economy suffers from a recessionary gap:

AD is lower than required for equilibrium with AS at potential output.
AD and AS intersect at an equilibrium real GDP higher than potential output.
AS is greater than potential output.
AD is stronger than required for equilibrium at potential output.
b) The aggregate demand curve would shift horizontally as a result of:

a change in the general price level.
a change in the GST.
a change in autonomous investment expenditure.
a change in the money wage rates paid for labour services.
c) A downward shift in the aggregate supply curve might best be explained by:
a decrease in indirect taxes like the GST.
a decrease in labour productivity.
an increase in money wages rates.
an increase in business taxes.
d) An inflationary gap is measured as :

The amount by which the equilibrium real GDP (Y) exceeds potential output (YP).
the amount by which AD must increase to give equilibrium at potential output (YP).
the amount by which potential output (YP) exceeds equilibrium real GDP (Y).
the amount by which the AS curve must fall to give equilibrium at potential output (YP).
e) A rise in the general price level causes a decrease in aggregate expenditure and:
a leftward shift in the aggregate demand curve.
a movement up to the left along a fixed aggregate demand curve.
a corresponding increase in the aggregate supply curve.
a rightward shift in the aggregate demand curve.
Marking:
(a) Your answer was : AD is lower than required for equilibrium with AS at potential output.
(b) Your answer was : a change in autonomous investment expenditure.

(c) Your answer was : an increase in business taxes.

The correct answer is: a decrease in indirect taxes like the GST.
(d) Your answer was : The amount by which the equilibrium real GDP (Y) exceeds potential output (YP).
(e) Your answer was : a movement up to the left along a fixed aggregate demand curve.
Overall Mark: 4/5

DONE
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Lab 2 (Question 4)
Name: Ahmad Hashem
Date: 2019-02-02 21:08
a) The positive slope of the short-run aggregate supply curve shows that:
a higher general price level leads producers to expand output when input prices remain constant.
a higher general price level increases aggregate demand and output.
a lower general price level raises interest rates.
a lower general price level lowers input prices like money wage rates paid for labour inputs to
production.
b)
Refer to the diagram. Based on the AD - AS model illustrated:

with constant AS conditions as described by AS0, business cycle fluctuations are caused by
fluctuations in AD.
a fall in AD from AD2 to AD1 would reduce equilibrium real GDP to Y1 at P1.
aggregate demand AD2 results in equilibrium real GDP Y2 at P2.
all of the above.
c) A downward shift in the aggregate supply curve might best be explained by:
an increase in money wages rates.
a decrease in indirect taxes like the GST.
an increase in business taxes.
a decrease in labour productivity.
d) An inflationary gap is measured as :

the amount by which potential output (YP) exceeds equilibrium real GDP (Y).
the amount by which AD must increase to give equilibrium at potential output (YP).
The amount by which the equilibrium real GDP (Y) exceeds potential output (YP).
the amount by which the AS curve must fall to give equilibrium at potential output (YP).
e) The aggregate demand - aggregate supply (AD - AS) model has the power to explain:
changes in the price level independent of real GDP.
changes in the world price and the production of crude oil.
changes in real GDP without concern for the price level.
changes in both real GDP and the price level, simultaneously.
Marking:
(a) Your answer was : a higher general price level leads producers to expand output when input prices
remain constant.
(b) Your answer was : all of the above. .

(c) Your answer was : a decrease in indirect taxes like the GST.
(d) Your answer was : The amount by which the equilibrium real GDP (Y) exceeds potential output (YP).
(e) Your answer was : changes in both real GDP and the price level, simultaneously.
Overall Mark: 5/5

DONE
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Lab 3 (Question 1)
Name: Ahmad Hashem
Date: 2019-02-05 21:38
Consider an economy of a nation that has the following aggregate expenditure.
Note: Please make sure your final answers are accurate to 2 decimal places.
a) What is the value of the equilibrium national real GDP?
Equilibrium = $2,120
b) What is the value of the multiplier?
Multiplier = 2
c) If the autonomous consumption were to decrease by $1,590, what would be the new value of equilibrium
real GDP?
New equilibrium = $-1,060

Marking:
(a)
(b)
(c)
Your answer was: -$1,060.00
Overall Mark: 6/6

DONE
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Lab 3 (Question 2)
Name: Ahmad Hashem
Date: 2019-02-05 23:18

Research by a team of expert economists has uncovered the consumption and import functions and produced a
forecast of planned investment and exports for the economy of Sunny City as reported below:
Real GDP Y Consumption C Investment I Exports X Imports IM

0 100 100 75 25
100 190 100 75 65
200 280 100 75 105
300 370 100 75 145
400 460 100 75 185
500 550 100 75 225
600 640 100 75 265
700 730 100 75 305
800 820 100 75 345
900 910 100 75 385
1,000 1,000 100 75 425
1,100 1,090 100 75 465
1,200 1,180 100 75 505
a) What equilibrium real GDP would Sunny City produce?
Equilibrium real GDP: 600
b) What are the marginal propensities to consume and import in Sunny City.
Note: Keep as much precision as possible during your calculations. Your final answer should be accurate to at
least two decimal places.
Marginal propensity to consume: 0.9

Marginal propensity to import: 0.4
c) What is the size of the multiplier?

Size of the multiplier: 2
d) If actual GDP were 700, what difference between planned and actual investment would result? Why?
The aggregate expenditure would be 650 . Due to the difference between the aggregate expenditure and Y,
inventories are increased to fill the gap. Planned investment, including planned inventory investment is 100 but
the unplanned changes to inventories results in an actual investment of 150 .
e) If planned investment increases by 20 to 120, what is the new equilibrium income?
New equilibrium income : 640
Marking:
a)
Equilibrium real GDP
The correct answer was: 500
The equilibrium real GDP occurs when Y = C + I + X - IM. The equilibrium real GDP for Sunny City would be 500.
b)
Marginal Propensity to Consume
Marginal Propensity to Import

c)
Multiplier
d)
Aggregate Expenditure
In order to find the AE function, we first need to find it's autonomous expenditure, A0. When the real GDP (Y) is
zero, A0 = AE = C + I + X - IM = 100 + 100 + 75 - 25 = 250.
AE = A0 + (c - m)Y, but (c - m) is the slope of the AE function, so we get:
AE = A0 + (slope of AE) Y
= 250 + (0.5)(700)
= 600
Inventory Gap
Your answer was: increased
New Investment
You have correctly deduced this from your earlier answers; however, at least one of your earlier answers was
incorrect, causing your answer for this part to be incorrect.
You will not lose any further marks for this.
e)
New equilibrium income
You have correctly deduced this from your earlier answers; however, at least one of your earlier answers was
incorrect, causing your answer for this part to be incorrect.
Overall Mark: 12/16

DONE
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Lab 3 (Question 2)
Name: Ahmad Hashem
Date: 2019-02-05 23:30

Research by a team of expert economists has uncovered the consumption and import functions and produced a
forecast of planned investment and exports for the economy of Glamourburg as reported below:
Real GDP Y Consumption C Investment I Exports X Imports IM

0 100 100 75 25
100 190 100 75 65
200 280 100 75 105
300 370 100 75 145
400 460 100 75 185
500 550 100 75 225
600 640 100 75 265
700 730 100 75 305
800 820 100 75 345
900 910 100 75 385
1,000 1,000 100 75 425
1,100 1,090 100 75 465
1,200 1,180 100 75 505
a) What equilibrium real GDP would Glamourburg produce?
Equilibrium real GDP: 500
b) What are the marginal propensities to consume and import in Glamourburg.

Marginal propensity to consume: 0.9

Marginal propensity to import: 0.4
c) What is the size of the multiplier?

Size of the multiplier: 2
d) If actual GDP were 900, what difference between planned and actual investment would result? Why?
The aggregate expenditure would be 700 . Due to the difference between the aggregate expenditure and Y,
inventories are increased to fill the gap. Planned investment, including planned inventory investment is 100 but
the unplanned changes to inventories results in an actual investment of 300 .
e) If planned investment increases by 60 to 160, what is the new equilibrium income?
New equilibrium income : 620
Marking:
a)
b)
Marginal Propensity to Consume
Marginal Propensity to Import

c)
Multiplier
d)
Aggregate Expenditure
Inventory Gap
New Investment
e)
New equilibrium income
Overall Mark: 16/16

DONE
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Lab 3 (Question 3)
Name: Ahmad Hashem
Date: 2019-02-05 23:36
The following diagram shows the aggregate expenditure schedule for the economy and the equilibrium
condition on the 45 degree line. Round all answers to the nearest whole number.
a) Suppose output is K. What is the level of planned aggregate expenditure? Is planned expenditure
greater or less than output?
If output is K, planned expenditure would be 8 . Planned expenditure would be less than current
output.
b) What is the size of the unplanned change in inventories at output K.
The unplanned decrease in inventories amounts to 4 .
c) How will business firms respond to this situation?

Business firms will respond by increasing output.
d) What is the equilibrium income and expenditure?
Equilibrium level of output and expenditure = 16
e) Suppose output is at J, is there an unplanned change in inventories? By how much?

There would be unplanned increase in inventories in the amount 9 .
Marking:
a)
Planned expenditure at K:
The correct answer was: 12.00
At output K, the planned expenditure can be found by reading the value where the K and AE line intersect,
which is B = 12.
Planned expenditure at K:
Your answer was: less
The correct answer was: greater
At output K, the AE line is above the 45 degree line meaning the planned expenditures would be greater
than current output.
b)
c)
d)
e)
Overall Mark: 6/8

DONE
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Lab 3 (Question 3)
Name: Ahmad Hashem
Date: 2019-02-05 23:40
The following diagram shows the aggregate expenditure schedule for the economy and the equilibrium
condition on the 45 degree line. Round all answers to the nearest whole number.
a) Suppose output is K. What is the level of planned aggregate expenditure? Is planned expenditure
greater or less than output?
If output is K, planned expenditure would be 12 . Planned expenditure would be greater than current
output.
b) What is the size of the unplanned change in inventories at output K.
The unplanned decrease in inventories amounts to 4 .
c) How will business firms respond to this situation?

Business firms will respond by increasing output.
d) What is the equilibrium income and expenditure?
Equilibrium level of output and expenditure = 16
e) Suppose output is at J, is there an unplanned change in inventories? By how much?

There would be unplanned increase in inventories in the amount 7 .
Marking:
a)
b)
c)
d)
e)
Overall Mark: 8/8

DONE
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Lab 3 (Question 4)
Name: Ahmad Hashem
Date: 2019-02-05 23:45
The distinction between autonomous and induced expenditure is important for the determination of
equilibrium real GDP. Assume that the marginal propensity to consume is 0.7, the marginal propensity to
import is 0.2 and autonomous aggregate expenditure is 30. Please make sure your final answer(s) are
accurate to the nearest whole number.
a) What is the equation for the aggregate expenditure function under these assumptions?
AE = 30+0.5*Y
b) Draw the aggregate expenditure function in the income-expenditure 45o line graph.
c) What is the equilibrium level of real GDP?
Equilibrium GDP = 60
Marking:
(a)
Your answer was: 30+0.5*Y
(b)
Aggregate expenditure
(c)
Your answer was: 60
Overall Mark: 6/6

DONE
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Lab 3 (Question 5)
Name: Ahmad Hashem
Date: 2019-02-05 23:56
a) A closed economy without a government sector is described by the following equations:

Consumption: C = 100 + 0.5Y
Investment: I = 50
The equilibrium level of real income (Y) for this economy is:
200
300
150
unknown because the information given is incomplete
b)
Based on the information presented in the table, the equation representing the consumption for the
economy is:
C = 60
C = 60 + 0.6Y
C = - 60 + 0.4Y
C = 300
c)
Based on the data in the table, the equilibrium level of real GDP in the economy is:
300
200
125
500
d) If the equation for the consumption function is: C = C0 + cY:

the marginal propensity to consume, ΔC/ΔY = c.
the level of autonomous consumption expenditure is c.
aggregate consumption C does not depend on real income Y.
the marginal propensity to save, ΔS/ΔY = C0.
e) The multiplier is a number that predicts the size of:

the increase in equilibrium real GDP caused by an increase in autonomous expenditure.
the change in the slope of the aggregate expenditure (AE) line caused by a change in the
consumption expenditure.
the increase in household expenditure caused by a increase in disposable income.
the fall in equilibrium real GDP caused by a fall in household saving.
Marking:
(a) Your answer was : 300.

(b) Your answer was : C = 60 + 0.6Y.

(c) Your answer was : 500.

(d) Your answer was : the marginal propensity to consume, ΔC/ΔY = c.

(e) Your answer was : the increase in equilibrium real GDP caused by an increase in autonomous
expenditure.
Overall Mark: 5/5

DONE
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Lab 4 (Question 1)
Name: Ahmad Hashem
Date: 2019-02-11 22:11

Suppose the government raises its revenue by a net tax of 40 percent on income, t = 0.4. The marginal
propensity to consume out of disposable income is 0.85 and the marginal propensity to import is 0.2.
a) What is the slope of the AE function? What is the size of the multiplier?
Slope of AE = 0.31
Multiplier = 1.45
b) Autonomous expenditure by the household and business sectors (C + I) is 300, government expenditure
is 400, exports are 50 and imports are 20. What is the autonomous expenditure and equilibrium output?
What is the government's budget balance?
Autonomous Expenditure = 730

Equilibrium Real GDP = 1,058.5
Government Budget Balance = 23.4
c) The government increases its expenditures by 100 to provide additional funding for national defense.
What is the effect on equilibrium income and output? What is the effect on the net tax revenue?
Equilbrium income increases by 145 and the net tax revenue increases by 58 .
d) What is the government's new budget balance?
Government New Budget Balance = -18.6
Marking:
a)
Slope of AE
Multiplier
b)
Autonomous expenditure

Your answer was: 1,058.50
The correct answer was: 1,057.97
Equilibrium real GDP is:

A0 730
Ye = = = 1,057.97
(1 - slope of AE) 1 - 0.31
Government budget balance

You have correctly deduced this from your earlier answers; however, at least one of your earlier answers
was incorrect, causing your answer for this part to be incorrect.
c)
d)
Government new budget balance
Your answer was: -18.60
The correct answer was: -18.81
Overall Mark: 10/11

DONE
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Lab 4 (Question 2)
Name: Ahmad Hashem
Date: 2019-02-11 22:27

Suppose the government raises its revenue by a net tax of 25 percent on income, t = 0.25, the marginal
propensity to consume out of disposable income is 0.8, the marginal propensity to import is 0.02, and the
government has an outstanding public debt of 1,100. In addition, the autonomous expenditure in
households, business and foreign sectors (C + I + X - IM) is 225 and government expenditure is 375.
a) What is the public debt ratio?
Public debt ratio = 77%
b) Now, suppose the government increases its expenditures by 140 to provide additional funding for
national defense. What is the size of the outstanding public debt after the increase in government
expenditure, assuming the economy has reached its new equilibrium national income in one year?
New public debt = 1,025.48
c) What is the debt ratio after the increase in government expenditure and equilibrium income?
New public debt ratio = 58.2%
Marking:
(a)
Public debt ratio
(b)
New public debt
To find the new size of the outstanding debt we need to figure out how the change in government
expenditure impacts the government budget balance. As the increase in government expenditure is 140,
we can figure out the increase in Y will be G × multiplier = 140 × 2.380952 = 333.333.
1
The multiplier is calculated as: .
1 - c(1 - t) + m
Now, to find the change in the public debt, use:

ΔPD = -BB
= -(tY - G)
= -tY + G
= -0.25(333.333) + 140
= 56.6667
Therefore, the new debt is calculated by adding the previous outstanding public debt and the change in
public debt:
New public debt = 1,100 + 56.6667 = 1,156.6667
(c)
New public debt ratio
Overall Mark: 8/12

DONE
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Lab 4 (Question 2)
Name: Ahmad Hashem
Date: 2019-02-11 22:44

Suppose the government raises its revenue by a net tax of 20 percent on income, t = 0.2, the marginal
propensity to consume out of disposable income is 0.75, the marginal propensity to import is 0.21, and the
government has an outstanding public debt of 800. In addition, the autonomous expenditure in households,
business and foreign sectors (C + I + X - IM) is 300 and government expenditure is 300.
a) What is the public debt ratio?
Public debt ratio = 81.33%
b) Now, suppose the government increases its expenditures by 70 to provide additional funding for national
defense. What is the size of the outstanding public debt after the increase in government expenditure,
assuming the economy has reached its new equilibrium national income in one year?
New public debt = 847.05
c) What is the debt ratio after the increase in government expenditure and equilibrium income?
New public debt ratio = 77.12%
Marking:
(a)
Public debt ratio
(b)
New public debt
(c)
New public debt ratio

Overall Mark: 12/12
DONE
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Lab 4 (Question 3)
Name: Ahmad Hashem
Date: 2019-02-11 22:52

Answer the questions below based on the following economy:
C = 4,500 + 0.25(Y - T)
I = I0 = 1,500
G = G0 = 2,000
X = 700
IM = 200
T = T0 = 2,000
Yp = 10,000
a) Find autonomous expenditure.
Autonomous Expenditure = $6,700
b) Find the multiplier.
Multiplier = 1.33
c) Find short-run equilibrium output.
Short-run Equilibrium Output = $8,266.67
d) Find the output gap.
Output Gap = $-1,733.33
e) By how much would autonomous expenditure have to change to eliminate the output gap?
Increase by $ 1,300.03
Marking:
To find the answers below, we need to know the formula for planned aggregate expenditure:
AE = C + I + G + X - IM
AE = 4,500 + 0.25(Y - 2,000) + 1,500 + 2,000 + 700 - 200
AE = 8,000 + 0.25Y
a)
Autonomous Expenditure
The correct answer was: $8,000.00
Autonomous expenditure equals the part of aggregate expenditure that does not depend on output.
b)
Multiplier
c)
Short-run Equilibrium Output
The correct answer was: $10,666.67
To find short-run equilibrium output, use the equation Y = AE and solve for Y:
Y = 8,000 + 0.25Y
0.75Y = 8,000
Y = 10,666.67.
d)
Output Gap
Your answer was: -$1,733.33
The correct answer was: $666.67
e)
Type of Change
Your answer was: Increase
The correct answer was: Decrease
Amount of Change
As the multiplier is 1.33, to eliminate the output gap of 666.67, autonomous expenditure would have to
change by -501.25 (-1/1.33 * 666.67), that is, autonomous expenditure would have to decrease by $501.25.

Overall Mark: 5/10
DONE
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Lab 4 (Question 3)
Name: Ahmad Hashem
Date: 2019-02-11 22:59

Answer the questions below based on the following economy:
C = 4,500 + 0.5(Y - T)
I = I0 = 2,000
G = G0 = 1,000
X = 400
IM = 300
T = T0 = 1,500
Yp = 14,000
a) Find autonomous expenditure.
Autonomous Expenditure = $6,850
b) Find the multiplier.
Multiplier = 2
c) Find short-run equilibrium output.
Short-run Equilibrium Output = $13,700
d) Find the output gap.
Output Gap = $-300
e) By how much would autonomous expenditure have to change to eliminate the output gap?
Increase by $ 150
Marking:
a)
Autonomous Expenditure
b)
Multiplier
c)
Short-run Equilibrium Output
d)
Output Gap
Your answer was: -$300.00
e)
Type of Change
Your answer was: Increase
Amount of Change
Your answer was: $150.00
Overall Mark: 10/10

DONE
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Lab 4 (Question 4)
Name: Ahmad Hashem
Date: 2019-02-11 23:14

If the government expenditure is 20 and the net tax rate is t = 0.1:
a) Compute the following table:
Y NT = tY G BB = NT - G
100 10 20 -10
200 20 20 0
300 30 20 10
400 40 20 20
500 50 20 30
600 60 20 40
700 70 20 50
b) On the following graph plot government expenditure and the net tax functions:
c) Given Yp = 400 on the following graph plot the BB and SBB curve, as well as Yp:
d) Complete the following statement:
Given the values of government expenditure and tax rate, if Y falls below Yp. BB will fall and SBB will
stay constant .
Marking:
a)
Net tax revenue
Government expenditure
Government budget balance

b)
Net tax revenue
Government expenditure
c)
Actual Balance
Structural Balance
Potential Output
d)
Effect on BB
Your answer was: fall
Effect on SBB
Your answer was: stay constant
Overall Mark: 39/39

DONE
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Lab 4 (Question 5)
Name: Ahmad Hashem
Date: 2019-02-11 23:37

Let the Canadian economy be described below. You are an economist in the Department of Finance,
Ottawa.
C = 75 + 0.8Yd (Yd is disposable income)

I = 320 (Investment spending)
G = 120 (Government purchases)
NT = 0.1Y (Net taxes)
X = 85 (Exports are constant)
IM = 0.22Y (Imports depend positively on our own Y)
a) Calculate the equilibrium Y.
Y = 1,200
b) Find the autonomous multiplier.
Autonomous multiplier = 2
c) Find the government budget balance BB, given your Y in (a).
BB = 0
d) Oil prices have been rising recently. Higher crude oil prices translate to higher costs for gasoline, plastic
and many products. Suppose the higher oil prices translate to our investment spending dropping from 320
to 120 due to a weaker investment confidence. Find the new Y.
Y = 800
e) Find the BB as a result of the drop in investment spending.
BB = -40
f) Is this change in BB due to an increase in government spending, i.e., is the Canadian government to be
blamed?
Yes
No
g) Suppose the government wants to push the economy back to the Y level in (a) but with the investment
spending still at I = 120. Find the new G necessary.
G = 200
h) Also find new BB with the government spending in (g) and the investment spending = 120.
BB = -240
i) Without further calculations, use the AD-AS diagram to demonstrate the effect of the government's action
in (g). Be sure to include the initial drop in investment spending from (d) in your diagram.
Marking:
(a)
(b)
(c)
(d)
(e)
(f)
Your answer was : No.
(g)
If Yp = 1,200 and Y = 800, there is a recessionary gap of 400. An increase in G by 200 will increase
equilibrium income to Yp based on a multiplier of 2.
(h)
The correct answer was: -200.00
Government budget balance is the difference between revenues and expenditures.

BB = tY - G = 0.1Y - 320
Therefore, the government budget balance at Y = 1,200 is
BB = 0.1 × 1,200 - 320 = -200
(i)
Original Equilibrium (Point)
Investment effect on aggregate demand

Investment effect on Equilibrium (Point)

Government action effect on aggregate demand

Government action effect on equilibrium (Point)

Overall Mark: 25/29

Your mark of 25/29 is less than your previous best mark of 27/29 and will not be
recorded.
DONE
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Lab 4 (Question 6)
Name: Ahmad Hashem
Date: 2019-02-11 23:48
a)
In the diagram NT is tax revenue and G is government expenditure. All figures are in billions. In this
economy:
government spending is independent of GDP, but tax revenues and the budget balance vary
directly with GDP.
tax revenues, government spending and the budget balance all vary directly with GDP.
tax revenues, government spending and the budget balance all vary inversely with GDP.
tax revenues vary directly with GDP, but government spending and the budget balance are
independent of GDP.
b) In an open economy with imports described by the import function: IM = 0.25Y and exports equal to X =
250:
the net export function would be NX = 250 + 0.25Y.
exports would be greater than imports at all levels of GDP.
if real GDP were 1600 net exports would be zero.
in a diagram the net export function would have a vertical intercept of 250 and a slope (ΔIM/ΔY) of
- 0.25.
c)
Based on the data for an open economy in the table presented:
the multiplier is 1.7 and equilibrium real GDP is 652.
d) If the government's budget function is BB = tY - G, a contractionary or restrictive fiscal policy produces:

an upward shift in the budget function and a downward shift in the economy's aggregate
expenditure curve.
a downward shift in the budget function and a movement along the existing aggregate expenditure
curve.
an upward shift in the budget function and an upward shift in the economy's aggregate expenditure
curve.
a downward shift in the budget function but no change in economy's aggregate expenditure curve.
e) In an economy that is open to international trade:

an increase in exports is offset by an equal increase in imports with no effect on the AE function.
an increase in exports shifts the AE function up, but an increase in the marginal propensity to
import has no effect on the AE function.
a decrease in exports has no effect on the AE function, but an increase in the marginal propensity
to import raises the slope of the AE function.
an increase in exports shifts the AE function up, but an increase in imports reduces the slope of the
AE function
Marking:
(a) Your answer was : government spending is independent of GDP, but tax revenues and the budget
balance vary directly with GDP.
(b) Your answer was : in a diagram the net export function would have a vertical intercept of 250 and a
slope (ΔIM/ΔY) of - 0.25.
(c) Your answer was : the multiplier is 1.7 and equilibrium real GDP is 652.
(d) Your answer was : a downward shift in the budget function and a movement along the existing
aggregate expenditure curve.
The correct answer is: an upward shift in the budget function and a downward shift in the economy's

(e) Your answer was : an increase in exports shifts the AE function up, but an increase in imports reduces
the slope of the AE function.
Overall Mark: 4/5

DONE
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Lab 4 (Question 6)
Name: Ahmad Hashem
Date: 2019-02-11 23:55
a) The government's actual budget surplus or deficit is determined by:

the equilibrium level of national income determined by autonomous expenditures and the multiplier.
the net tax rate, the level of government expenditure and the equilibrium level of national income.
the net tax rate set by the government.
the level of government spending set by the government.
b) If the government's budget function is BB = tY - G, a contractionary or restrictive fiscal policy produces:

a downward shift in the budget function and a movement along the existing aggregate expenditure
curve.
an upward shift in the budget function and a downward shift in the economy's aggregate
expenditure curve.
an upward shift in the budget function and an upward shift in the economy's aggregate expenditure
curve.
a downward shift in the budget function but no change in economy's aggregate expenditure curve.
c) Suppose the MPC and the slope of the AE function are 0.8, giving a multiplier of 5.0. Then a newly
formed government introduces a net tax on national income, NT = 0.2Y. As a result:
the slope of the AE function is unchanged, the multiplier remains 5.0 and equilibrium national
income is not affected.
the slope of the AE function decrease to 0.64, the multiplier decreases to 2.78 and equilibrium
national income decreases.
the slope of the AE function decreases to 0.64, the multiplier decreases to 1.56 and equilibrium
national income decreases.
the slope of the AE function increases to 1.0, the multiplier and equilibrium national income both
increase.
d) In an open economy with imports described by the import function: IM = 0.25Y and exports equal to X =
250:
the net export function would be NX = 250 + 0.25Y.
in a diagram the net export function would have a vertical intercept of 250 and a slope (ΔIM/ΔY) of
- 0.25.
exports would be greater than imports at all levels of GDP.
if real GDP were 1600 net exports would be zero.
e)
The diagram illustrates the government budget function: BB = 0.25Y - 150. If the actual equilibrium
GDP in the economy is 500 and estimated potential GDP is 700:
the structural budget balance is 0 but the actual budget balance is a surplus of 25.
the economy is experiencing an inflationary gap.
the structural budget balance is a surplus of 25 but the actual budget balance is a deficit of 25.
the structural budget balance and the actual budget balance are equal at a surplus of 50.
Marking:
(a) Your answer was : the net tax rate, the level of government expenditure and the equilibrium level of
national income.
(b) Your answer was : an upward shift in the budget function and a downward shift in the economy's
(c) Your answer was : the slope of the AE function decrease to 0.64, the multiplier decreases to 2.78 and
equilibrium national income decreases.
(d) Your answer was : in a diagram the net export function would have a vertical intercept of 250 and a
slope (ΔIM/ΔY) of - 0.25.
(e) Your answer was : the structural budget balance is a surplus of 25 but the actual budget balance is a
deficit of 25.
Overall Mark: 5/5

DONE
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Lab 4 (Question 7)
Name: Ahmad Hashem
Date: 2019-02-12 0:15

An economy is in equilibrium at a real GDP of 850, but current estimates put potential output at Yp = 800.
a) Answer the following fill-in the blank question.
When Y = 850 and Yp = 800 there is a inflationary gap and the size of the gap is equal to 50 .
b) Answer the following fill-in the blank question.

least three decimal places.
Research suggests that the MPC is 0.8, the MPM is 0.15, and the net tax rate is 0.2. Therefore, the slope of AE is
0.49 and the multiplier is 1.961 which means that G must be decreased by 25.5 to remove the gap
and achieve equilibrium.
c) If the government preferred to change its net tax rate to eliminate the gap, and not change government
expenditure, what new tax rate would be required to eliminate the gap?
least three decimal places.
Tax rate required to eliminate the gap = 0.24
Marking:
(a)
Gap type
Your answer was: inflationary
Gap size
Your answer was: 50
(b)
Slope of AE
Multiplier
Government expenditure (G)

(c)
Overall Mark: 12/12

DONE
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Lab 4 (Question 8)
Name: Ahmad Hashem
Date: 2019-02-12 0:21

A simple macroeconomic system is described below. Assuming the system follows the aggregate
expenditures model, please answer the questions that follow.
C = C0 + cYd C = consumption expenditure

C0 = 150 C0 = autonomous consumption expenditure
c = 0.6 c = marginal propensity to consume (MPC)
Yd = Y - NT Yd = disposable income
NT = tY NT = net taxes
t = 0.1 t = tax rate
I0 = 120 I0 = investment expenditure
G0 = 330 G0 = government expenditure
X0 = 120 X0 = exports
IM = IM0 + mY IM = imports
IM0 = 280 IM0 = autonomous imports
m = 0.1 m = marginal propensity to import (MPM)
Y = real GDP/income
a) Calculate the equilibrium level of income. Keep as much precision as possible during your calculations.
Your final answer should be accurate to the nearest dollar.
Equilibrium = $786
b) What is the multiplier for government expenditures? That is, increasing government expenditures by $1
increases the equilibrium level of income by how much? Keep as much precision as possible during your
calculations. Your final answer should be accurate to at least two decimal places.
Government Multiplier = 1.79
c) Suppose that the potential income for this economy is $1,666. What change in government spending
would eliminate this gap and bring the economy back to equilibrium? Keep as much precision as possible
during your calculations. Your final answer should be accurate to the nearest dollar.
Government Change = $493
Marking:
(a)
(b)
(c)
Overall Mark: 14/14

DONE
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Lab 5 (Question 1)
Name: Ahmad Hashem
Date: 2019-03-09 17:26

Choose the term that best matches each of the following descriptions:
Marking:
a) Credit money The debt of a private business or individual.
b) Reserve ratio (rr) The ratio of cash reserves to deposit liabilities held by banks.
c) Net interest income The excess of loan interest earned over deposit interest paid.
d) Bank reserves Cash (legal tender) held by banks to meet possible withdrawals by depositors.
e) Barter Direct exchanges of goods or services for goods or services without the use of
exchanges money.
f) Unit of account The standard in which prices are quoted and accounts are kept.
g) E- It has no centralized issuer and is not denominated in any national currency. It is a

payments cryptocurrency such as a bitcoin.
The correct answer was 'Decentralized e-money'. This will cost you 1 mark.
h) Financial panic The risk that customers may demand cash for their deposits.
The correct answer was 'Bankers risk'. This will cost you 1 mark.
i) Deposit multiplier The change in the bank deposits caused by a change in the monetary base.
j) Money supply Notes and coin in circulation outside banks plus bank deposits.
Overall Mark: 8/10

DONE
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Lab 5 (Question 1)
Name: Ahmad Hashem
Date: 2019-03-09 17:31

Marking:
a) E-payments Payments made using mobile access to bank accounts eg. by internet or telephone.
b) Money supply Notes and coin in circulation outside banks plus bank deposits.
c) Barter Direct exchanges of goods or services for goods or services without the use of
exchanges money.
d) Net interest income The excess of loan interest earned over deposit interest paid.
e) Unit of account The standard in which prices are quoted and accounts are kept.
f) Token money Convertible claims on commodity money.
g) Standard of deferred payments The units in which future financial obligations are measured.
h) Decentralized e- It has no centralized issuer and is not denominated in any national currency. It is a
money cryptocurrency such as a bitcoin.
i) Deposit multiplier The change in the bank deposits caused by a change in the monetary base.
j) Fiat money Money the government has declared as legal tender.
Congratulations, your answers are all correct!
Overall Mark: 10/10

DONE
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Lab 5 (Question 2)
Name: Ahmad Hashem
Date: 2019-03-09 17:35
Assume that Irlene deposits $1,000 in currency in the Bank of Newfoundland. A half-hour later, Jessica
obtains a loan for $750 at this bank.
By how much, and in what direction has the money supply changed?
Increase of $ 750
Marking:
Direction of Change
Your answer was: Increase of
Amount of Change
Overall Mark: 4/4

DONE
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Lab 5 (Question 3)
Name: Ahmad Hashem
Date: 2019-03-09 17:43
Calculate the following amounts for the imaginary economy of Kappa.
Please make sure your final answer(s) are accurate to 2 decimal places.
a) The money supply is $550, of which $150 is currency held by the public. Bank reserves are $100. Find
the reserve ratio.
Reserve ratio = 0.25
b) The money supply is $2,750, and currency held by the public equals bank reserves. The reserve ratio is
0.1. Find bank reserves.
Bank reserves = $ 0
c) Bank reserves are $300, the public holds $1,700 in currency, and the reserve ratio is 0.1. Find deposits
and the money supply.
Deposits = $ 3,000
Money Supply = $ 4,700
Marking:
(a)
(b)
Your answer was: $0
The correct answer was: $250
Let X = Currency held by the public = Bank reserves.

Then the [Money supply] = [Currency held by the public] + [Deposits]
so that M = X + X ÷ [Reserve ratio], or
$2,750 = X + X ÷ 0.1 = 11X, so that X = $250.
So currency and bank reserves both equal $250.
(c)
Deposits
Money Supply
Overall Mark: 6/8

DONE
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Lab 5 (Question 3)
Name: Ahmad Hashem
Date: 2019-03-09 17:48
Calculate the following amounts for the imaginary economy of Gamma.
Please make sure your final answer(s) are accurate to 2 decimal places.
a) The money supply is $900, and currency held by the public equals bank reserves. The reserve ratio is
0.2. Find bank reserves.
Bank reserves = $ 150
b) Bank reserves are $300, the public holds $2,900 in currency, and the reserve ratio is 0.1. Find deposits
and the money supply.
Deposits = $ 3,000
Money Supply = $ 5,900
c) The money supply is $1,550, of which $550 is currency held by the public. Bank reserves are $200. Find
the reserve ratio.
Reserve ratio = 0.2
Marking:
(a)
(b)
Deposits
Money Supply
(c)

Overall Mark: 8/8
DONE
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Lab 5 (Question 4)
Name: Ahmad Hashem
Date: 2019-03-09 17:50
Suppose the Bank of New Brunswick has excess reserves of $8,000 and deposits of $100,000. If the
reserve ratio is 20 percent, what is the size of the bank's total reserves?
Total Reserves = $20,000
Marking:

The correct answer was: $28,000
To calculate the total reserves, we must first determine the cash reserves = [deposits] × [reserve ratio] =
$20,000.
Now, we can use the formula [total reserves] = [cash reserves] + [excess reserves] to get the total reserves
of $28,000.
Overall Mark: 0/4

DONE
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Lab 5 (Question 4)
Name: Ahmad Hashem
Date: 2019-03-09 17:51
Suppose the Bank of Manitoba has excess reserves of $5,000 and deposits of $100,000. If the reserve
ratio is 20 percent, what is the size of the bank's total reserves?
Total Reserves = $25,000
Marking:

Overall Mark: 4/4

DONE
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Lab 5 (Question 5)
Name: Ahmad Hashem
Date: 2019-03-09 18:00

Suppose that Person A deposits $110 (cash) at Bank A. Complete the following questions.
a) Suppose Bank A realizes that, on average, its customers only withdraw a portion of their deposits, and
so it can lend out some money to other customers. Bank A now chooses the reserve ratio to be 25% or
0.25. Bank A lends out the remaining amount of money as loans to Person B. Record the effect of this
transaction on the balance sheet below:
Assets Liabilities
Reserves = $27.5 Deposits = $110
Loans = $82.5
b) Person B borrows this money as loans from Bank A and pays to Person C. Suppose Person C deposits
this amount with Bank B. Bank B, similar to Bank A, also chooses a reserve ratio of 0.25 and issues the
remaining cash as loans to Person D. Record the effect of this transaction on the balance sheet below:
Assets Liabilities
Reserves = $20.63 Deposits = $82.5
Loans = $61.88
c) Person D borrows this money as loans from Bank B and pays to Person E. Suppose Person E deposits
this amount with Bank C. Bank C also chooses a reserve ratio of 0.25 and issues the remaining cash as
loans to Person F. Record the effect of this transaction on the balance sheet below:
Assets Liabilities
Reserves = $15.47 Deposits = $61.88
Loans = $46.41
d) What is the money multiplier? Use your answer to find the amount of new money supply created.
Money multiplier = 4
Amount of new money created = $ 440
e) Suppose the reserve ratio is now 0.35. If Person A had deposited his $110 now, what would be the
amount of money created now?
Amount of new money created = $314.29
Marking:
(a)
Bank A's Reserves
Bank A's Loans

Bank A's Deposits

(b)
Bank B's Reserves
Bank B's Loans

Bank B's Deposits

(c)
Bank C's Reserves
Bank C's Loans

Bank C's Deposits

(d)
Money Multiplier
Amount of New Money created

Amount of new money created = Initial loan × Money multiplier = $82.50 × 4 = $330.
Note: The initial deposit of $110 does not change the money supply, only the composition; so we must start
the creation of money with the initial loan.
(e)
Amount of new money created = Initial loan × Money multiplier = $71.50 × (1 ÷ 0.35) = $204.29.
Overall Mark: 10/12

DONE
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Lab 5 (Question 6)
Name: Ahmad Hashem
Date: 2019-03-09 18:09
Suppose that in Mexico the reserve ratio (rr) is 0.25.
a) Find the increase in money supply associated with increases in bank reserves of $2, $8, and $13.
Increase in Increase in
bank reserves money supply
$2 8
$8 16
$13 52
b) What is the money multiplier in this economy?
Money Multiplier = 4
Marking:
(a)
Increase in bank reserves of $2
Your answer was: $8

For example, if the deposits are $600, the initial bank reserves must be $150 ([Bank reserves] = [Deposits]
× [Reserve ratio])
An increase of $8 in bank reserves expands deposits from $600 to $632 ($158 / 0.25), increasing deposits
and the money supply by $32.
More generally, $8 / 0.25 = $32.

(b)
Your answer was: 4
Overall Mark: 5/7

DONE
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Lab 5 (Question 7)
Name: Ahmad Hashem
Date: 2019-03-09 18:20
a) The distinction between commercial banks and other financial institutions like insurance companies and
mortgage brokers and investment companies is that:
commercial banks provide their customers with ATM access to cash.
commercial banks make loans to their customers.
commercial banks maintain large, ornate banking offices to serve their customers.
commercial bank liabilities are used as money by their customers.
b)
The diagram illustrates money supply functions for a particular country. The shift in the money supply
function from M0 to M1 in the diagram would be the result of:
an increase in bank desired reserve ratios in response to instability in financial markets.
an increase in real GDP based on increased exports.
a decrease in the monetary base.
a decrease in the public's cash ratio in response to tranquility in financial markets.
c) The money supply is defined as:

the total of currency in circulation outside the banks plus bank deposits.
the total gold holdings of the central bank.
the total of bank notes in circulation or held in the ATM's of banks.
the total of token money outstanding.
d) If the banks' desired reserve ratio (rr) is 2.5% and the public's currency ratio (cr) is 7.5% an increase in
monetary base (MB) of $1,000 will result in:
an increase in deposits of $10,000 and an increase of $750 in the public's cash holdings.
a decrease in deposits of $10,000 and an increase of $7,500 in the public's cash holdings.
an increase in deposits of $100 and an increase of $75 in the public's cash holdings.
e)
The table presented shows a change in a national banking system's consolidated balance sheet as a
result of a new cash deposit of $1,000. Suppose the banking system operates to a desired reserve ratio
of 5%, and the public's cash ratio is 5%. After the banking system and the public adjust to this new
cash:
bank deposits will have decreased by $1,000, bank lending will be unchanged and the public cash
holdings will have decreased by $1,000.
bank deposits will have decreased by $10,000, bank lending by $9,000 but public cash holdings will
be unchanged.
bank deposits have increased by $20,000, bank lending by $19,000 and public cash holdings will
be $1,000 less.
bank deposits will have increased by $10,000, bank lending by $9,500 and public cash holdings by
$500.
Marking:
(a) Your answer was : commercial bank liabilities are used as money by their customers.
(b) Your answer was : a decrease in the public's cash ratio in response to tranquility in financial markets.
(c) Your answer was : the total of currency in circulation outside the banks plus bank deposits.
(d) Your answer was : an increase in deposits of $10,000 and an increase of $750 in the public's cash
holdings.
(e) Your answer was : bank deposits have increased by $20,000, bank lending by $19,000 and public cash
holdings will be $1,000 less.
The correct answer is: bank deposits will have increased by $10,000, bank lending by $9,500 and public
cash holdings by $500.

Overall Mark: 4/5
DONE
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Lab 5 (Question 7)
Name: Ahmad Hashem
Date: 2019-03-09 18:29
a) When the money supply is measured in Canada, the measures include:

all bank deposits issued to customers who deposited notes and coin.
all notes and coins held by the banks and the public, plus all bank deposits.
only the notes and coin held by the public, no bank deposits.
all notes and coin not held by the banks, plus all bank deposits.
b)
The table presented shows the consolidated position of a simple national banking system. Assume
individuals in this country hold no cash and the banks' desired reserve ratio is 10 per cent. Then after
the banking system adjusts to achieve its desired reserve ratio, its total deposit liabilities and reserve
assets will be:
deposits = $200,000; reserves = $20,000.
deposits = reserves = $100,000
deposits = $1,000,000; reserves = $100,000.
deposits = $1,000,000; reserves = $1,000,000.
c) If the banks' desired reserve ratio (rr) is 2.5% and the public's currency ratio (cr) is 7.5% an increase in
monetary base (MB) of $1,000 will result in:
an increase in deposits of $100 and an increase of $75 in the public's cash holdings.
an increase in deposits of $10,000 and an increase of $750 in the public's cash holdings.
d)
cash:
$500.
bank deposits will have decreased by $10,000, bank lending by $9,000 but public cash holdings
will be unchanged.
be $1,000 less.
e) Token money is:

money with greater value used as a medium of exchange than as a commodity
gold coins with exchange value equal to their gold content.
money that is a debt of the issuer.
money with lower value used as a medium of exchange than as a commodity.
Marking:
(a) Your answer was : all notes and coin not held by the banks, plus all bank deposits.
(b) Your answer was : deposits = $1,000,000; reserves = $100,000.

(c) Your answer was : an increase in deposits of $10,000 and an increase of $750 in the public's cash
holdings.
(d) Your answer was : bank deposits will have increased by $10,000, bank lending by $9,500 and public
(e) Your answer was : gold coins with exchange value equal to their gold content.
The correct answer is: money with greater value used as a medium of exchange than as a commodity.
Overall Mark: 4/5

DONE
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Lab 5 (Question 7)
Name: Ahmad Hashem
Date: 2019-03-09 18:33
a) If a commercial bank receives a new cash deposit of $1,000 and operates with an 8 per cent reserve
ratio:
the bank has a shortage of reserves of $80.
the bank has excess reserves of $1,000.
the bank's reserve position is not affected because both deposits and cash reserves change by the
same amount.
the bank can expand its lending and deposits by $920.
b) The distinction between commercial banks and other financial institutions like insurance companies and
mortgage brokers and investment companies is that:
commercial banks make loans to their customers.
commercial banks provide their customers with ATM access to cash.
commercial banks maintain large, ornate banking offices to serve their customers.
commercial bank liabilities are used as money by their customers.
c)
The diagram illustrates money supply functions for a particular country. The shift in the money supply
function from M0 to M1 in the diagram would be the result of:
an increase in real GDP based on increased exports.
a decrease in the public's cash ratio in response to tranquility in financial markets.
an increase in bank desired reserve ratios in response to instability in financial markets.
a decrease in the monetary base.
d) The role of a central bank like the Bank of Canada is to:

support and protect the profitability of commercial banks.
control the quantity of high powered money used as reserves by commercial banks.
guarantee the deposits of commercial banks customers.
provide printed cheques and bank notes to commercial bank customers.
e)
cash:
$500.
be $1,000 less.
bank deposits will have decreased by $10,000, bank lending by $9,000 but public cash holdings will
be unchanged.
Marking:
(a) Your answer was : the bank can expand its lending and deposits by $920.
(b) Your answer was : commercial bank liabilities are used as money by their customers.
(c) Your answer was : a decrease in the public's cash ratio in response to tranquility in financial markets.
(d) Your answer was : control the quantity of high powered money used as reserves by commercial banks.
(e) Your answer was : bank deposits will have increased by $10,000, bank lending by $9,500 and public

Overall Mark: 5/5
DONE
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Lab 6 (Question 1)
Name: Ahmad Hashem
Date: 2019-03-17 4:52
Assume that the current equilibrium price for a barrel of oil is $23 and the interest rate is 6.00 percent.
Round answers to the nearest whole number.
a) What does the price of oil need to be in 3 years to justify extracting it now?
The oil should be extracted if, in 3 years, its price is less than $ 23
b) What will happen if oil producers think that the price of a barrel of oil in 3 years will be more than this
figure?
In this case, the producer will not extract the oil
Marking:
(a)
Relative Size of Future Price to Current Price
Your answer was: is less than
Future Price Value

Calculate the future price of the oil given this year's equilibrium price and the fixed interest rate.
interest rate
Future price = equilibrium × ( + 1)3
100
6.00 3
= $23 × (
100 + 1)
= $23 × (1.06)3
= $27
(b)
Your answer was: not extract the oil

Overall Mark: 4/6
DONE
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Lab 6 (Question 1)
Name: Ahmad Hashem
Date: 2019-03-17 4:56
figure?
Marking:
(a)
Future Price Value

Calculate the future price of the oil given this year's equilibrium price and the fixed interest rate.
interest rate
Future price = equilibrium × ( + 1)2
100
3.50 2
= $28 × (
100 + 1)
= $28 × (1.035)2
= $30
(b)

Overall Mark: 4/6
DONE
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Lab 6 (Question 1)
Name: Ahmad Hashem
Date: 2019-03-17 4:58
figure?
Marking:
(a)
Future Price Value

(b)
Overall Mark: 6/6

DONE
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Lab 6 (Question 2)
Name: Ahmad Hashem
Date: 2019-03-17 5:20

A simplified economy is specified as follows:
A. Goods market, all values C, I, G and NX values are in billions of C$:
Consumption Expenditure: C = 160 + 0.6(Y-T)

Investment Expenditure: I = 1,300 - 560i
Government Expenditure: G = 280
Lump-sum Constant Taxes: T = 280
Exports: 80
Imports: 10
B. Money market, all Md values are in billions of C$:
Interest Rate: i = 0.09 or 9%

Money Demand: Md = 790 - 1,800i
Note: Please keep your answers accurate to two decimal places.
a) Given the above information, solve for the following: the equilibrium Y, the money supply M, the
consumption expenditure C, and the investment expenditure I.
Y = 3,979
M = 628
C = 2,379.4
I = 1,249.6
Now suppose there is an impending federal election, and the government promises to use fiscal policies to
stimulate the economy.
b) Find the value of the goods market multiplier.
Goods market multiplier = 2.5
c) Let G rise to 360. Solve for the new equilibrium Y and C.
Y = 4,179
C = 2,499.4
d) Demonstrate how the increase in G affects the economy through the multiplier. Use three rounds of
effects to demonstrate the multiplier effects. Let the first round be related to health care spending, the
second round related to clothing, and the third round related to food.
Round 1 -> As the government wants to spend $1 (or $1 billion)

on health care, it demands the production of health care equipment
such as hospitals, medicine, equipment, etc. to be built and sold to
the government. So as ΔG = 1, the production ΔY = 2.5 . This Y is the
income to the nurses, doctors, construction workers, etc.
Round 2 -> As the nurses receive their new income of Y = 3,981.5 , they
spend 60 % of this $ 3,701.5 on clothing -> 1 cents worth of clothing would
be produced, or ΔY = 2.5 -> this 1 cents would be the income of the
workers involved in making the clothing.
Round 3 -> As the clothing workers receive their new income of

Y = 680 , they spend 60 % of this 400 cents on food -> ( 0 )( 0 ) = 0 or
0 cents worth of food would be produced, or ΔY = 0 -> this would
be the new income to the food workers.
e) Now consider monetary policies only. Suppose the BOC wants to drop the i to 0.04 or 4%, with G still at
$280. Solve for the new I and the ΔI compared to when i = 0.09. Given the multiplier, how much would you
expect Y to rise by?
I = 1,076
Change in I = -173.6
Change in Y = -434
f) Given the changes in (e), find the equilibrium Y, the money supply M, the consumption expenditure C,
and the investment expenditure I.
Y = 3,545
M = 70
C = 2,119
I = 1,076
g) Complete the following statement to demonstrate how the drop in i affects the money supply, then I, then
Y, then C.
ΔI Increases
i decreases -> ΔM Increases -> ΔY Increases
ΔC Increases
Marking:
(a)
Y
M
C
I
(b)
Goods market multiplier
(c)
Y
C
(d)
The statement should have been filled out as:
Round 1 -> As the government wants to spend $1 (or $1 billion) on health care, it demands the production
of health care equipment such as hospitals, medicine, equipment, etc. to be built and sold to the
government. So as ΔG = 1, the production ΔY = 1. This Y is the income to the nurses, doctors, construction
workers, etc.
Round 2 -> As the nurses receive their new income of Y = 1, they spend 60% of this $1 on clothing -> 60
cents worth of clothing would be produced, or ΔY = 0.6 -> this 60 cents would be the income of the workers
involved in making the clothing.
Round 3 -> As the clothing workers receive their new income of Y = 0.6, they spend 60% of this 60 cents
on food -> (0.6)(0.6) = 0.36 or 36 cents worth of food would be produced, or ΔY = 0.36 -> this would be the
new income to the food workers.
(e)
I
Solving I from the investment expenditure function given above and with the new interest rate of 4% we get
I = 1,300 - 560 × (0.04) = 1,277.6.
Change in I
Change in Y
(f)
Y
Given the new interest rate of 4%, we know that the equilibrium Y = C + I + G + NX = [160 + 0.6(Y - 280)] +
[1,300 - 560 × (0.04)] + 280 + (80 - 10).
Solving for Y gives Y = 4,049.
M
We know that Money Supply = Md, thus solving for money supply gives money supply = 718.
C
I
Solving I from the investment expenditure function given above and the new interest rate, we get I = 1,300 -
560 × (0.04) = 1,277.6.
(g)
You have entered the correct answers.
Overall Mark: 12/21

DONE
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Lab 6 (Question 2)
Name: Ahmad Hashem
Date: 2019-03-17 5:34


Investment Expenditure: I = 1,400 - 500i
Exports: 70
Imports: 10

Money Demand: Md = 770 - 1,800i
Note: Please keep your answers accurate to two decimal places.
a) Given the above information, solve for the following: the equilibrium Y, the money supply M, the
consumption expenditure C, and the investment expenditure I.
Y = 4,132.5
M = 536
C = 2,467.5
I = 1,335
Now suppose there is an impending federal election, and the government promises to use fiscal policies to
stimulate the economy.
Goods market multiplier = 2.5
c) Let G rise to 350. Solve for the new equilibrium Y and C.
Y = 4,332.5
C = 2,587.5
d) Demonstrate how the increase in G affects the economy through the multiplier. Use three rounds of
effects to demonstrate the multiplier effects. Let the first round be related to health care spending, the
second round related to clothing, and the third round related to food.
Round 1 -> As the government wants to spend $1 (or $1 billion)

on health care, it demands the production of health care equipment
such as hospitals, medicine, equipment, etc. to be built and sold to
the government. So as ΔG = 1, the production ΔY = 1 . This Y is the
income to the nurses, doctors, construction workers, etc.
Round 2 -> As the nurses receive their new income of Y = 1 , they

spend 60 % of this $ 1 on clothing -> 60 cents worth of clothing would
be produced, or ΔY = 0.6 -> this 60 cents would be the income of the
workers involved in making the clothing.
Round 3 -> As the clothing workers receive their new income of

Y = 0.6 , they spend 60 % of this 60 cents on food -> ( 0.6 )( 0.6 ) = 0.36 or
0.36 cents worth of food would be produced, or ΔY = 0.36 -> this would
be the new income to the food workers.
e) Now consider monetary policies only. Suppose the BOC wants to drop the i to 0.08 or 8%, with G still at
$270. Solve for the new I and the ΔI compared to when i = 0.13. Given the multiplier, how much would you
expect Y to rise by?
I = 1,360
Change in I = 25
Change in Y = 62.5
f) Given the changes in (e), find the equilibrium Y, the money supply M, the consumption expenditure C,
and the investment expenditure I.
Y = 4,195
M = 626
C = 2,505
I = 1,360
g) Complete the following statement to demonstrate how the drop in i affects the money supply, then I, then
Y, then C.
ΔI Increases
i decreases -> ΔM Increases -> ΔY Increases
ΔC Increases
Marking:
(a)
Y
M
C
I
(b)
Goods market multiplier
(c)
Y
C
(d)
Round 1 -> As the government wants to spend $1 (or $1 billion) on health care, it demands the production
of health care equipment such as hospitals, medicine, equipment, etc. to be built and sold to the
government. So as ΔG = 1, the production ΔY = 1. This Y is the income to the nurses, doctors, construction
workers, etc.
Round 2 -> As the nurses receive their new income of Y = 1, they spend 60% of this $1 on clothing -> 60
cents worth of clothing would be produced, or ΔY = 0.6 -> this 60 cents would be the income of the workers
involved in making the clothing.
Round 3 -> As the clothing workers receive their new income of Y = 0.6, they spend 60% of this 60 cents
on food -> (0.6)(0.6) = 0.36 or 36 cents worth of food would be produced, or ΔY = 0.36 -> this would be the
new income to the food workers.
(e)
I
Change in I
Change in Y
(f)
Y
M
C
I
(g)
Overall Mark: 20/21

DONE
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Lab 6 (Question 3)
Name: Ahmad Hashem
Date: 2019-03-17 5:45


Investment Expenditure: I = 1,100 - 4,500i
Exports: 70
Imports: 50

Money Demand: Md = 1,400 - 20,400i
a) Given the above information, solve for the following: The equilibrium Y, money supply M, consumption
expenditure C, and investment expenditure I.
Y = 6,190
M = 992
C = 4,620
I = 1,010
The Conference Board of Canada has recently announced that consumer confidence in Canada dropped.
Let the drop in consumer confidence to be equal to 5 points, from 100 to 95, so now C = 95 + 0.8(Y-T).
Goods market multiplier = 5
c) Find the new Y, by either using the long calculation method or by using the multiplier.
New Y = 6,165
d) Demonstrate how the drop in consumer confidence would affect the economy through the multiplier. Use
three rounds of effects to demonstrate the multiplier effects. Let the first round be related to car purchases,
the second round related to clothing, and the third round related to food.
C drops by 1, so we buy one less car. Car workers have $1 less in income, so
they spend $ 0.8 less on clothing (they still have to wear something, the $ 0.8
worth of clothing). Clothing workers have $ 0.8 less income, so they spend
$ 0.64 less on food (they still have to eat, the $ 0.64 worth of food), and so on...
e) Suppose the Bank of Canada (BOC) is trying to reverse this adverse effect on the economy. For
simplicity, it is not concerned about inflation for now. The BOC can drop the bank rate in order to stimulate
investment spending (I). Suppose you work for the BOC and your boss Mark Carney has just dropped by
your office to ask you what he should do.
You need to find the new interest rate that is required to stimulate I. The increase in I has to be sufficient to
push the overall Y level back to the original Y level that you have found in a).
Hints: You already know what the value of Y has to be. Now determine what the new I must be in order to
offset the drop in consumer confidence, then find the i that is required to achieve this new I.
i = 0.02%
Marking:
(a)
Y
M
C
I
(b)
(c)
(d)
C drops by 1, so we buy one less car. Car workers have $1 less in income, so they spend $0.80 less on
clothing (they still have to wear something, the $0.20 worth of clothing!). Clothing workers have $0.80 less
income, so they spend $0.64 less on food (they still have to eat, the $0.16 worth of food), and so on...
(e)
Overall Mark: 10/12

DONE
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Lab 6 (Question 3)
Name: Ahmad Hashem
Date: 2019-03-17 5:50


Investment Expenditure: I = 1,100 - 4,500i
Exports: 70
Imports: 50

Money Demand: Md = 1,400 - 19,700i
a) Given the above information, solve for the following: The equilibrium Y, money supply M, consumption
expenditure C, and investment expenditure I.
Y = 5,855
M = 809
C = 4,440
I = 965
The Conference Board of Canada has recently announced that consumer confidence in Canada dropped.
Let the drop in consumer confidence to be equal to 15 points, from 100 to 85, so now C = 85 + 0.8(Y-T).
Goods market multiplier = 5
c) Find the new Y, by either using the long calculation method or by using the multiplier.
New Y = 5,780
d) Demonstrate how the drop in consumer confidence would affect the economy through the multiplier. Use
three rounds of effects to demonstrate the multiplier effects. Let the first round be related to car purchases,
the second round related to clothing, and the third round related to food.
C drops by 1, so we buy one less car. Car workers have $1 less in income, so
they spend $ 0.8 less on clothing (they still have to wear something, the $ 0.2
worth of clothing). Clothing workers have $ 0.8 less income, so they spend
$ 0.64 less on food (they still have to eat, the $ 0.16 worth of food), and so on...
e) Suppose the Bank of Canada (BOC) is trying to reverse this adverse effect on the economy. For
simplicity, it is not concerned about inflation for now. The BOC can drop the bank rate in order to stimulate
investment spending (I). Suppose you work for the BOC and your boss Mark Carney has just dropped by
your office to ask you what he should do.
You need to find the new interest rate that is required to stimulate I. The increase in I has to be sufficient to
push the overall Y level back to the original Y level that you have found in a).
Hints: You already know what the value of Y has to be. Now determine what the new I must be in order to
offset the drop in consumer confidence, then find the i that is required to achieve this new I.
i = 2.67%
Marking:
(a)
Y
M
C
I
(b)
(c)
(d)
(e)
Overall Mark: 12/12

DONE
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Lab 6 (Question 4)
Name: Ahmad Hashem
Date: 2019-03-17 5:56
The figures below show the demand for money and the money market.
a) Plot the total demand for money (by plotting at least 2 points) and the equilibrium interest rate.
b) In this graph, at the interest rate ie:

$90 billion is demanded for transactions, $80 billion is demanded for assets, and the money supply is $170 billion
The amount of money demanded for assets is $80 billion
The amount of money demanded for transactions is $90 billion
c) Suppose the supply of money increases by $100 billion. The equilibrium interest rate would :
fall, the amount of money demanded for transactions would rise, and the amount of money demanded for assets would decline
fall, and the amounts of money demanded both for transactions and for assets would increase
fall, the amounts of money demanded for transactions would be unchanged, and the amount of money demanded for assets would
rise
rise, the amount of money demanded for transactions would be unchanged, and the amount of money demanded for assets would
decline
Marking:
a)
Total Demand For Money Line
Your line is close to the correct slope, but your line is placed in a different location than the correct line.
Total demand for money is the sum of the transactions demand for money and the asset demand for money. We can find the total demand
for money by horizontally adding the asset demand to the transactions demand.
Equilibrium Interest Rate Point

You did not plot a point.
b)
Your answer was : The amount of money demanded for transactions is $90 billion.
The correct answer is: $90 billion is demanded for transactions, $80 billion is demanded for assets, and the money supply is $170 billion.
From the graph, we can see that at equilibrium interest rate, the amount of money demanded for transactions is $90 billion, $80 billion is
demanded for assets, and the money supply is $170 billion.
c)
Your answer was : fall, the amounts of money demanded for transactions would be unchanged, and the amount of money demanded for
assets would rise.
Overall Mark: 2/8

DONE
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Lab 6 (Question 4)
Name: Ahmad Hashem
Date: 2019-03-17 6:01

c) Suppose the supply of money declines by $100 billion. The equilibrium interest rate would :
decline
rise
Marking:
a)

You did not plot a point.
b)
Your answer was : $70 billion is demanded for transactions, $90 billion is demanded for assets, and the money supply is $160 billion.
c)
Your answer was : rise, the amount of money demanded for transactions would be unchanged, and the amount of money demanded for
assets would decline.
Overall Mark: 6/8

DONE
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Lab 6 (Question 4)
Name: Ahmad Hashem
Date: 2019-03-17 6:03

c) Suppose the supply of money increases by $100 billion. The equilibrium interest rate would :
decline
rise
Marking:
a)

b)
Your answer was : $80 billion is demanded for transactions, $80 billion is demanded for assets, and the money supply is $160 billion.
c)
Your answer was : fall, the amounts of money demanded for transactions would be unchanged, and the amount of money demanded for
assets would rise.
Overall Mark: 8/8

DONE
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Lab 6 (Question 5)
Name: Ahmad Hashem
Date: 2019-03-17 6:06
Assume that the following data characterize a hypothetical economy: money supply = $250 billion; quantity
of money demanded for transactions = $215 billion; quantity of money demanded as an asset = $15 billion
at 12 percent interest, increasing by $5 billion for each 2-percentage point fall in the interest rate.
a) What is the equilibrium interest rate?
Equilibrium interest rate = 4%
b) At the equilibrium interest rate, what is the quantity of money supplied?
Money supplied = $250 billion
c) At the equilibrium interest rate, what is the total quantity of money demanded?
Money demanded = $250 billion
d) At the equilibrium interest rate, what is the quantity of money demanded for transactions?
Money demanded for transactions = $215 billion
e) At the equilibrium interest rate, what is the quantity of money demanded as an asset?
Money demanded as an asset = $35 billion
Marking:
a)
Your answer was: 4%
b)
Your answer was: $250 billion
c)
d)
e)
Overall Mark: 6/6

DONE
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Lab 6 (Question 6)
Name: Ahmad Hashem
Date: 2019-03-17 6:17
a) The current market price of a $100 bond with a $5.00 annual coupon and 10 yrs to maturity is:
the sum of its face value, $100, times ten years plus its annual coupon, $5.00, times ten years.
the present value at today's interest rate of $100 paid 10 years from now plus the present values of
the annual $5.00 coupons paid over the next ten years.
the present value at today's interest rate of $100 paid 10 years from now.
the sum of its face value, $100, plus all its annual $5.00 coupons.
b)
If the money market in the diagram is not in equilibrium at the interest rate i1:
portfolio managers with be content with their holdings of bonds and money balances because low
interest rates a good for consumers.
portfolio managers will buy bonds to increase their bond holdings, pushing bond prices up and
interest rates down until equilibrium is established.
portfolio managers will sell bonds to increase their money holdings, pushing bond prices down and
interest rates up until equilibrium is reached.
portfolio managers will lobby banks and central banks to increase their lending, deposits and the
money supply.
c)
The money market in the diagram presented shows that with unchanged demand for money the market
adjustment to an increase in real money supply:
has no effect on interest rates or bond prices.
raises the equilibrium interest rate from i1 to i0 as portfolio managers bid bond prices down.
lowers the equilibrium interest rate from i0 to i1 as portfolio managers bid bond prices up.
changes the price level to hold the real money supply constant.
d) In a certain economy the components of aggregate expenditure are given by:
C = 160 + .6 (Y - T) - 1000 i
I = 200 - 1000 i
G = 200
NX = 50
T = 100
If an increase in money supply lowers interest rates from 5 percent (i0 = 0.05) to 4 percent (i1 = 0.04)
the short run equilibrium real GDP (Y) will:
rise from 1125 to 1175.
fall from 1325 to 1275.
fall from 1100 to 1075.
rise from 825 to 875.
e) Suppose the demand for real money balances is described by the equation L = kY - hi, where Y is real
GDP and i is the market interest rate. Assuming initially that Y = Y0 and the demand for money (L) is
drawn in a diagram with respect to interest rates measured on the vertical axis then:
a fall in interest rates with no change in real GDP will change the quantity of money demanded,
moving down to the right along the L curve.
a rise in real GDP with no change in interest rates will change the quantity of money demanded,
moving down to the right along the L curve.
a rise in interest rates with no change in real GDP will reduce the quantity of money demanded,
shifting the L curve to the left.
a fall in real GDP with no change in interest rates will increase the demand for money shifting the L
curve to the right.
Marking:
(a) Your answer was : the present value at today's interest rate of $100 paid 10 years from now plus the
present values of the annual $5.00 coupons paid over the next ten years.
(b) Your answer was : portfolio managers will buy bonds to increase their bond holdings, pushing bond
prices up and interest rates down until equilibrium is established.
The correct answer is: portfolio managers will sell bonds to increase their money holdings, pushing bond
prices down and interest rates up until equilibrium is reached.
(c) Your answer was : lowers the equilibrium interest rate from i0 to i1 as portfolio managers bid bond prices
up.
(d) Your answer was : rise from 1125 to 1175.

(e) Your answer was : a fall in interest rates with no change in real GDP will change the quantity of money
demanded, moving down to the right along the L curve.
Overall Mark: 4/5

DONE
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Lab 6 (Question 6)
Name: Ahmad Hashem
Date: 2019-03-17 6:21
a) The interaction of the demand for real money balances, L, and the supply of real money balances, M/P,
in the money market determines:
the equilibrium real GDP and employment.
the equilibrium quantity of real money balances supplied by the banking system.
the equilibrium supply of bonds governments issue to finance their deficits.
the equilibrium interest rate at which portfolio managers are content with the mix of money and
bonds in their portfolios.
b)
If the money market in the diagram is not in equilibrium at the interest rate i1:
portfolio managers with be content with their holdings of bonds and money balances because low
interest rates a good for consumers.
portfolio managers will lobby banks and central banks to increase their lending, deposits and the
money supply.
portfolio managers will buy bonds to increase their bond holdings, pushing bond prices up and
interest rates down until equilibrium is established.
portfolio managers will sell bonds to increase their money holdings, pushing bond prices down and
interest rates up until equilibrium is reached.
c) Which one of the following statements about the demand for money is correct?
The amount of money that people hold is positively related to the interest rate.
Other things constant, fall in the real interest rate reduces the size of real money balances people
want to hold.
The amount of money that individuals want to hold decreases as the level of real national income
rises.
The amount of money that people hold is positively related to real national income and negatively
related to interest rates.
d) Suppose the current market interest rate is 4.0 per cent. Then the present value of a sum of $1000 you
expect to receive three years from today is approximately:
$988.90
$889.00
$1125.00
$1000.00
e)
The money market in the diagram presented shows that with unchanged demand for money the market
adjustment to an increase in real money supply:
lowers the equilibrium interest rate from i0 to i1 as portfolio managers bid bond prices up.
has no effect on interest rates or bond prices.
changes the price level to hold the real money supply constant.
raises the equilibrium interest rate from i1 to i0 as portfolio managers bid bond prices down.
Marking:
(a) Your answer was : the equilibrium interest rate at which portfolio managers are content with the mix of
money and bonds in their portfolios.
(b) Your answer was : portfolio managers will sell bonds to increase their money holdings, pushing bond
prices down and interest rates up until equilibrium is reached.
(c) Your answer was : The amount of money that people hold is positively related to real national income
and negatively related to interest rates.
(d) Your answer was : $1125.00.

The correct answer is: $889.00.
(e) Your answer was : lowers the equilibrium interest rate from i0 to i1 as portfolio managers bid bond prices
up.
Overall Mark: 4/5

DONE
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Lab 6 (Question 6)
Name: Ahmad Hashem
Date: 2019-03-17 6:28
a) Holding your wealth in a portfolio made up of both bonds and money provides:
no benefits in terms of either interest income or lower risk.
reduced risk of capital loss in return for lower interest income.
reduced bank fees and higher interest income.
an increase in interest income at the cost of lower risk.
b) The interaction of the demand for real money balances, L, and the supply of real money balances, M/P,
in the money market determines:
the equilibrium interest rate at which portfolio managers are content with the mix of money and
bonds in their portfolios.
the equilibrium quantity of real money balances supplied by the banking system.
the equilibrium supply of bonds governments issue to finance their deficits.
the equilibrium real GDP and employment.
c) The latest available data reveals a fall in the money supply. With other things constant we would
predict:
a rise in interest rates, a downward shift in the AE function and lower real GDP.
a rise in interest rates, an upward shift in the AE function and lower real GDP.
a fall in interest rates, a downward shift in the AE function and higher real GDP.
a fall in interest rates, an upward shift in the AE function and higher real GDP.
d)
The diagrams presented show that:
a rise in interest rates would lower autonomous aggregate expenditure, which would result in a
downward shift in the AE curve and lower equilibrium real GDP.
a rise in interest rates would lower autonomous aggregate expenditure, but that would not affect
the AE curve or equilibrium real GDP.
a fall in interest rates would lower autonomous aggregate expenditure, which would result in a
downward shift in the AE curve and lower equilibrium real GDP.
a fall in interest rates would not affect autonomous aggregate expenditure or the AE curve or the
equilibrium real GDP.
e) According to the monetary transmission mechanism, an increase in the money supply:

increases interest rates, reduces AE, increases AD and increases equilibrium Y.
decreases interest rates, raises AE, increases AD and increases equilibrium Y.
decreases interest rates, reduces AE, reduces AD and reduces equilibrium Y.
increases interest rates, raises AE, increases AD and reduces equilibrium Y.
Marking:
(a) Your answer was : reduced risk of capital loss in return for lower interest income.
(b) Your answer was : the equilibrium interest rate at which portfolio managers are content with the mix of
money and bonds in their portfolios.
(c) Your answer was : a rise in interest rates, a downward shift in the AE function and lower real GDP.
(d) Your answer was : a rise in interest rates would lower autonomous aggregate expenditure, which would
result in a downward shift in the AE curve and lower equilibrium real GDP.
(e) Your answer was : decreases interest rates, raises AE, increases AD and increases equilibrium Y.

Overall Mark: 5/5
DONE
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Lab 7 (Question 1)
Name: Ahmad Hashem
Date: 2019-03-18 2:58
Suppose the central bank decides to use its power to set the money supply constant. Use the money
market diagram below to show what happens to the demand for money and answer what happens to the
money supply and interest rates if real output increases.
a) Show what happens to the demand for money in the money market diagram.
b) Fill in the blanks with their appropriate movements in the following statement.
In this situation, the money supply will increase and the interest rate will decrease
Marking:
a)
Money Demand Curve
You have correctly indicated that the line should be shifted right.
b)
...money supply will increase and the interest...
Your answer was: increase

The correct answer was: not change
As the government is holding the money supply constant, that means that the increased demand for money
would only effect the interest rate.
...rate will decrease ...
Your answer was: decrease

The correct answer was: increase
Overall, the interest rate would increase to meet the increased demand for money and the money supply
would not change.
Overall Mark: 2/6

DONE
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Lab 7 (Question 1)
Name: Ahmad Hashem
Date: 2019-03-18 2:59
Suppose the central bank decides to use its power to set the money supply constant. Use the money
market diagram below to show what happens to the demand for money and answer what happens to the
money supply and interest rates if real output decreases.
a) Show what happens to the demand for money in the money market diagram.
b) Fill in the blanks with their appropriate movements in the following statement.
In this situation, the money supply will not change and the interest rate will decrease
Marking:
a)
Money Demand Curve
You have correctly indicated that the line should be shifted left.
b)
...money supply will not change and the interest...
Your answer was: not change

...rate will decrease ...

Overall Mark: 6/6

DONE
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Lab 7 (Question 2)
Name: Ahmad Hashem
Date: 2019-03-18 19:58

The monetary policy rule states that a central bank can monitor inflation and GDP by following the equation
given by i = i0 + (π - π*) + (Y - Yp). In reality, the Bank of Canada does seem to follow this rule, and set a
targeted inflation rate π*. For this question, suppose π* = 3%. Suppose the current inflation π = π*, and yet Y =
Yp. Let i0 = 9%.
a) Find the value of i.
i = 9%
b) Now suppose a drop in investment confidence leads to Y - Yp = -3%. Let us put aside inflation rates for now.
According to the monetary policy rule, what interest rate should the Bank of Canada now set?
Interest rate = 6%
c) How would you expect π to change when i drops? Explain what happens to AE and AD.
As the interest rate drops, firms will spend more on investment, so AD and AE will rise , therefore
creating upward pressure on inflation.
d) Suppose π = π* - Δi. Find the new π.
π = -3%
e) Suppose the Bank knew that the new π would be higher. In order to balance between inflation and GDP
targets, it has to set a new interest rate weighting both of these effects. Now find the new i that the Bank should
set knowing that π = π* - Δi.
Interest rate = 3%
f) Find the corresponding inflation rate.
Inflation rate = 0%
g) Discuss intuitively why this interest is higher/lower than the one you would have wanted to set in part b).
The new interest rate drops from 6 % to 3 %, because knowing that a huge drop in
interest rates would increase AD and subsequently increase inflation. Knowing this is the result (due to past
experience or economic research), the Bank now has to choose a higher interest rate in order to keep inflation
under control.
Marking:
a)
b)
c)
d)
Your answer was: -3.00%
The new π = 3% - (-3%) = 6%.
e)
inew = 9% + (π* - Δi - π*) + (-3%), so inew = 6% + (-Δi).

However, Δi = inew - iold, where iold = 9%.
Substituting, inew = 6% + [-(inew - 9%)], or inew = 6% - inew + 9%.
Therefore inew = 15% - inew, 2inew = 15%, so inew = 7.5%.
f)
From part e), Δi = inew - iold = 7.5% - 9% = -1.5%.

Therefore, the new π = 3% - (-1.5%) = 4.5%.
g)
...rate drops from 6 % to ...
The answer should be 9.00, but you have not entered this. This will cost you 1 mark.
...% to 3 %, because knowing...
The answer should be 7.50, but you have not entered this. This will cost you 1 mark.

The new interest rate drops from 9% to 7.5% because knowing that a huge drop in interest rates would
increase AD and subsequently increase inflation. Knowing this is the result (due to past experience or
economic research), the Bank now has to choose a higher interest rate in order to keep inflation under control.
Overall Mark: 11/19

DONE
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Lab 7 (Question 2)
Name: Ahmad Hashem
Date: 2019-03-18 20:12

The monetary policy rule states that a central bank can monitor inflation and GDP by following the equation
given by i = i0 + (π - π*) + (Y - Yp). In reality, the Bank of Canada does seem to follow this rule, and set a
targeted inflation rate π*. For this question, suppose π* = 1%. Suppose the current inflation π = π*, and yet Y =
Yp. Let i0 = 10%.
a) Find the value of i.
i = 10%
b) Now suppose a drop in investment confidence leads to Y - Yp = -3%. Let us put aside inflation rates for now.
According to the monetary policy rule, what interest rate should the Bank of Canada now set?
Interest rate = 7%
c) How would you expect π to change when i drops? Explain what happens to AE and AD.
As the interest rate drops, firms will spend more on investment, so AD and AE will rise , therefore
creating upward pressure on inflation.
d) Suppose π = π* - 1.5Δi. Find the new π.
π = 5.5%
e) Suppose the Bank knew that the new π would be higher. In order to balance between inflation and GDP
targets, it has to set a new interest rate weighting both of these effects. Now find the new i that the Bank should
set knowing that π = π* - 1.5Δi.
Interest rate = 8.8%
f) Find the corresponding inflation rate.
Inflation rate = 2.8%
g) Discuss intuitively why this interest is higher/lower than the one you would have wanted to set in part b).
The new interest rate drops from 10 % to 8.8 %, because knowing that a huge drop in
interest rates would increase AD and subsequently increase inflation. Knowing this is the result (due to past
experience or economic research), the Bank now has to choose a higher interest rate in order to keep inflation
under control.
Marking:
a)
b)
c)
d)
e)
f)
g)
Overall Mark: 19/19

DONE
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Lab 7 (Question 3)
Name: Ahmad Hashem
Date: 2019-03-18 20:27
Suppose the Bank of Canada sets its target for the overnight rate at 4 percent, with an operating band of 3.75 to 4.25
percent.
a) Bank A finds it has $75 million more on deposit at the central bank than it needs to meet its overnight clearing
balance requirement. What is the rate of interest it will earn by holding this central bank deposit overnight? What is
the maximum rate it could earn by lending overnight to another bank?
Rate of interest earned by holding deposit = 3.75%

Maximum rate earned by lending to another bank = 4%
b) Bank B finds it has $50 million less than it needs to meet its overnight clearing balance requirement. Where can it
borrow the funds it needs? What is the minimum rate it would have to pay to borrow overnight funds from another
bank? What rate would it have to pay if no other bank is willing to lend?
Funds can be borrowed from either the Bank of Canada or another bank that has an excess clearing balance.
Minimum rate to borrow funds = 4%
Rate paid if no other bank is willing to lend = 4.25%
c) Explain why an overnight loan contract between Banks A and B would have an interest rate that falls within the
central bank's operating band.
Any bank can earn 3.75 % on excess balances simply by leaving them on deposit at the Bank of Canada. It would
not lend to another bank at an interest rate less than the deposit rate. Any bank can borrow to cover shortfall in its
clearing balances from the Bank of Canada at the bank rate, 4.25 %. It need not pay more. As a result both
banks gain from a loan agreement that has an interest rate that falls within the operating band, greater than
3.75 % but less than 4.25 %.
Marking:
a)
Rate of interest earned by holding deposit
Maximum rate earned by lending to another bank

The maximum Bank A could earn by lending its excess balance to another bank is a fraction less than 4.25% at an
annual rate, the upper range for the overnight rate set by the Bank of Canada.
b)
Funds can be borrowed from
Your answer was: either the Bank of Canada or another bank that has an excess clearing balance
Minimum rate to borrow funds

The minimum Bank B would pay would be slightly more than 3.75%, the lower point in the operating range for the
overnight rate.
Rate paid if no other bank is willing to lend

c)
Any bank can earn:
Any bank can borrow:

Loan agreement greater than:

Loan agreement less than:

Overall Mark: 7/9

DONE
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Lab 7 (Question 3)
Name: Ahmad Hashem
Date: 2019-03-18 20:30
Suppose the Bank of Canada sets its target for the overnight rate at 3 percent, with an operating band of 2.75 to 3.25
percent.
a) Bank A finds it has $125 million more on deposit at the central bank than it needs to meet its overnight clearing
balance requirement. What is the rate of interest it will earn by holding this central bank deposit overnight? What is
the maximum rate it could earn by lending overnight to another bank?
Rate of interest earned by holding deposit = 2.75%

Maximum rate earned by lending to another bank = 3.25%
b) Bank B finds it has $100 million less than it needs to meet its overnight clearing balance requirement. Where can it
borrow the funds it needs? What is the minimum rate it would have to pay to borrow overnight funds from another
bank? What rate would it have to pay if no other bank is willing to lend?
Funds can be borrowed from either the Bank of Canada or another bank that has an excess clearing balance.
Minimum rate to borrow funds = 2.75%
Rate paid if no other bank is willing to lend = 3.25%
c) Explain why an overnight loan contract between Banks A and B would have an interest rate that falls within the
central bank's operating band.
Any bank can earn 2.75 % on excess balances simply by leaving them on deposit at the Bank of Canada. It would
not lend to another bank at an interest rate less than the deposit rate. Any bank can borrow to cover shortfall in its
clearing balances from the Bank of Canada at the bank rate, 3.25 %. It need not pay more. As a result both
banks gain from a loan agreement that has an interest rate that falls within the operating band, greater than
2.75 % but less than 3.25 %.
Marking:
a)
Rate of interest earned by holding deposit
Maximum rate earned by lending to another bank

b)
Funds can be borrowed from
Your answer was: either the Bank of Canada or another bank that has an excess clearing balance
Minimum rate to borrow funds

Rate paid if no other bank is willing to lend

c)
Any bank can earn:
Any bank can borrow:

Loan agreement greater than:

Loan agreement less than:

Overall Mark: 9/9

DONE
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Lab 7 (Question 4)
Name: Ahmad Hashem
Date: 2019-03-18 20:35
The central bank wants to maintain inflation at a fixed target and to see the economy operating at potential
output.
It sets its overnight rate (onr) based on the following rule:
onr = 4.5 + 3.9 (π - π*) + 0.6 [(Y - YP)/YP] × 100
a) If the economy is operating at potential output and the inflation rate is at the Bank's target, π*, what is
the Bank's onr setting?
onr = 4.5%
b) Suppose a boom in a major trading partner increases demand for domestic exports, increases AD and
increases real income Y = YP = 1,020 to Y = 1,142.4. How would the central bank respond (+ for increase,
- for decrease)?
Basis point change in onr = 720
c) Alternatively, suppose a drop in labour productivity growth pushed the inflation rate up by 0.5 percent.
How would the central bank respond (+ for increase, - for decrease)?
Basis point change in onr = -195
Marking:
a)
Bank's onr
b)
Basis point change in onr
c)
Your answer was: -195
A rise in the inflation rate by 0.5% would mean the inflation rate is 0.5% higher than the Bank's target. The
Bank would react to this rise in inflation rate by raising its onr by 3.9 × (0.5%) = 1.95%, which is an increase
of 195 basis points.
Overall Mark: 4/6

DONE
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Lab 7 (Question 4)
Name: Ahmad Hashem
Date: 2019-03-18 20:37
The central bank wants to maintain inflation at a fixed target and to see the economy operating at potential
output.
It sets its overnight rate (onr) based on the following rule:
onr = 5 + 4.1 (π - π*) + 0.9 [(Y - YP)/YP] × 100
a) If the economy is operating at potential output and the inflation rate is at the Bank's target, π*, what is
the Bank's onr setting?
onr = 5%
b) Suppose a recession in a major trading partner lowers demand for domestic exports, lowers AD and
lowers real income Y = YP = 1,050 to Y = 819. How would the central bank respond (+ for increase, - for
decrease)?
Basis point change in onr = -1,980
c) Alternatively, suppose a drop in labour productivity growth pushed the inflation rate up by 0.5 percent.
How would the central bank respond (+ for increase, - for decrease)?
Basis point change in onr = 205
Marking:
a)
Bank's onr
b)
Your answer was: -1,980
c)
Overall Mark: 6/6

DONE
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Lab 7 (Question 5)
Name: Ahmad Hashem
Date: 2019-03-18 20:17
a) The Bank of Canada would use an SPRA when:

a temporary shortage of monetary base puts upward pressure on the overnight interest rate.
it wants to provide a long term increase in the monetary base.
a temporary excess supply of monetary base puts downward pressure on the overnight interest
rate.
it wants to raise the overnight interest rate and the bank rate.
b) In Canada, the Bank of Canada uses the interest rate, not the money supply, as its monetary policy
instrument. As a result, when the Bank of Canada sets its interest rate the size of the money supply is
determined by:
the real interest rate and level of business investment expenditure.
the commercial banks operating to maximize profit.
the government sector's budget surplus or deficit.
the demand for money balances in the money market.
c) When a central bank sets an inflation rate target as the primary goal of monetary policy:
it must accept and support the government budget target set by the Minister of Finance.
it must also set a fixed exchange rate target that is independent of its inflation target.
it must also set a money supply target that is independent of its inflation target.
it must also accept the money supply, exchange and interest rate consistent with its inflation target.
d) The central bank's primary monetary policy objective is to:

assist the federal government in achieving a balanced budget at potential output.
provide a domestic money supply that is based on its gold holdings, consistent with the gold
standard.
provide the financial conditions that support stable real GDP consistent with potential GDP and low,
stable inflation.
provide the monetary conditions required for the maximum possible rate of growth in actual real
GDP.
e) In the short run, a central bank that operates to an interest rate rule (a Taylor rule) reacts to a
recessionary gap by:
increasing interest rates to decrease AE, decrease AD and decrease equilibrium real GDP.
decreasing interest rates to increase AE, increase AD and increase equilibrium real GDP.
decreasing interest rates to increase AE, increase AD and decrease equilibrium real GDP.
increasing interest rates to increase AE, decrease AD and decrease equilibrium real GDP.
Marking:
(a) Your answer was : a temporary shortage of monetary base puts upward pressure on the overnight
interest rate.
(b) Your answer was : the demand for money balances in the money market.
(c) Your answer was : it must also accept the money supply, exchange and interest rate consistent with its
inflation target.
(d) Your answer was : assist the federal government in achieving a balanced budget at potential output.
The correct answer is: provide the financial conditions that support stable real GDP consistent with
potential GDP and low, stable inflation.
(e) Your answer was : increasing interest rates to decrease AE, decrease AD and decrease equilibrium real
GDP.
The correct answer is: decreasing interest rates to increase AE, increase AD and increase equilibrium real
GDP.
Overall Mark: 3/5

DONE
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Lab 7 (Question 5)
Name: Ahmad Hashem
Date: 2019-03-18 20:20
a) In Canada, the Bank of Canada uses the interest rate, not the money supply, as its monetary policy
instrument. As a result, when the Bank of Canada sets its interest rate the size of the money supply is
determined by:
the demand for money balances in the money market.
the commercial banks operating to maximize profit.
the real interest rate and level of business investment expenditure.
the government sector's budget surplus or deficit.
b) When a central bank sets an inflation rate target as the primary goal of monetary policy:
it must also set a fixed exchange rate target that is independent of its inflation target.
it must also set a money supply target that is independent of its inflation target.
it must also accept the money supply, exchange and interest rate consistent with its inflation target.
it must accept and support the government budget target set by the Minister of Finance.
c) An open market purchase by the Bank of Canada would result in:

a fall in the excess reserves held by commercial banks.
a rise in the bank rate.
an increase in commercial bank reserves and an expansion of bank lending and deposits.
a fall in the money supply as commercial banks reduced their loans and deposits.
d) In the short run, a central bank that operates to an interest rate rule (a Taylor rule) reacts to a
recessionary gap by:
decreasing interest rates to increase AE, increase AD and increase equilibrium real GDP.
decreasing interest rates to increase AE, increase AD and decrease equilibrium real GDP.
increasing interest rates to increase AE, decrease AD and decrease equilibrium real GDP.
increasing interest rates to decrease AE, decrease AD and decrease equilibrium real GDP.
e) The Bank of Canada would use an SPRA when:

a temporary excess supply of monetary base puts downward pressure on the overnight interest
rate.
it wants to raise the overnight interest rate and the bank rate.
it wants to provide a long term increase in the monetary base.
a temporary shortage of monetary base puts upward pressure on the overnight interest rate.
Marking:
(a) Your answer was : the demand for money balances in the money market.
(b) Your answer was : it must also accept the money supply, exchange and interest rate consistent with its
inflation target.
(c) Your answer was : an increase in commercial bank reserves and an expansion of bank lending and
deposits.
(d) Your answer was : decreasing interest rates to increase AE, increase AD and increase equilibrium real
GDP.
(e) Your answer was : a temporary shortage of monetary base puts upward pressure on the overnight
interest rate.
Overall Mark: 5/5

DONE
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Lab 8 (Question 1)
Name: Ahmad Hashem
Date: 2019-03-25 1:16
The below diagram illustrates the equilibrium inflation rate. In this diagram, show how a permanent decrease in export demand would affect
the equilibrium inflation rate, if the central bank did not change its monetary policy. If the central bank did react to this change in the
equilibrium rate to defend its inflation target, what change in the interest rate setting and money supply growth would you observe?
First demonstrate the effect of the decrease in export demand in the graph (a) on the left; this change will automatically be made to the
graph (b) on the right. Then demonstrate the subsequent monetary policy effect on the graph to the right. Select which curve you want to
move from the drop down menu at the top of each graph to move that item. Note that if you go back and change the graph (a) again, you
must also re-enter your change on the graph (b).
Marking:
a)
Aggregate Demand
You have shifted the curve to the Left.
Aggregate Supply
You haven't shifted the curve at all.
b)
Aggregate Demand
You should have shifted the curve to the Right by a specific distance.
The aggregate demand curve should move back to its original location to reflect the central bank reaction.
Aggregate Supply
You have shifted the curve to the Bottom.
You shouldn't have shifted the curve at all.
Aggregate supply has not changed, so the curve will not shift at all.
Overall Mark: 0/4

DONE
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Lab 8 (Question 1)
Name: Ahmad Hashem
Date: 2019-03-25 1:18
The below diagram illustrates the equilibrium inflation rate. In this diagram, show how a permanent increase in export demand would affect
First demonstrate the effect of the increase in export demand in the graph (a) on the left; this change will automatically be made to the graph
(b) on the right. Then demonstrate the subsequent monetary policy effect on the graph to the right. Select which curve you want to move
from the drop down menu at the top of each graph to move that item. Note that if you go back and change the graph (a) again, you must also
re-enter your change on the graph (b).
Marking:
a)
Aggregate Demand
You should have shifted the curve to the Right.
Aggregate demand has increased, so the curve will shift to the right.
Aggregate Supply
b)
Aggregate Demand
You have shifted the curve to the Right.
Aggregate Supply
Overall Mark: 2/4

DONE
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Lab 8 (Question 1)
Name: Ahmad Hashem
Date: 2019-03-25 1:19
The below diagram illustrates the equilibrium inflation rate. In this diagram, show how a permanent increase in export demand would affect
First demonstrate the effect of the increase in export demand in the graph (a) on the left; this change will automatically be made to the graph
(b) on the right. Then demonstrate the subsequent monetary policy effect on the graph to the right. Select which curve you want to move
from the drop down menu at the top of each graph to move that item. Note that if you go back and change the graph (a) again, you must also
re-enter your change on the graph (b).
Marking:
a)
Aggregate Demand
You have shifted the curve to the Right.
Aggregate Supply
b)
Aggregate Demand
Aggregate Supply
Overall Mark: 4/4

DONE
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Lab 8 (Question 2)
Name: Ahmad Hashem
Date: 2019-03-25 1:24
An economy's aggregate demand curve (the relationship between short-run equilibrium output and
inflation) is described by the equation:
Y = 17,000 - 10,000π, where π is the inflation rate.
Initially, the inflation rate is 5 percent or π = 0.05. Potential output Yp equals 16,700.
Note: Keep as much precision as possible during your calculations. Your final answer for inflation should
be accurate to at least two decimal places and output should be accurate to the nearest whole number.
a) Find inflation and output in short-run equilibrium.
Inflation : 0 %
Output : $ 0
b) Find inflation and output in long-run equilibrium.
Inflation : 0 %
Output : $ 0
Marking:
a)
Inflation
The inflation in the short-run is the initial inflation rate given in the question.
Output
Your answer was: $0
To calculate the output, we need to use the formula : Y = 17,000 - 10,000π.

Plugging π = 0.05 into this equation we get Y = 16,500.

b)
Inflation
To calculate the inflation rate, we need to use the formula : Y = 17,000 - 10,000π.
In this case, we know the long-run output Y = 16,700, so we can manipulate the formula to give us π =
(17,000 - Y) / 10,000.
Plugging Y = 16,700 into this equation we get π = 0.03.
Then we multiply by 100 to get our answer as a percentage, so the long-run inflation is 3%.
Output
Your answer was: $0
The output in the long-run is the potential output Yp given in the question.
Overall Mark: 0/5

DONE
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Lab 8 (Question 2)
Name: Ahmad Hashem
Date: 2019-03-25 1:30
An economy's aggregate demand curve (the relationship between short-run equilibrium output and
inflation) is described by the equation:
Y = 11,000 - 16,000π, where π is the inflation rate.
Initially, the inflation rate is 4 percent or π = 0.04. Potential output Yp equals 10,200.
Note: Keep as much precision as possible during your calculations. Your final answer for inflation should
be accurate to at least two decimal places and output should be accurate to the nearest whole number.
a) Find inflation and output in short-run equilibrium.
Inflation : 4%
Output : $ 10,360
b) Find inflation and output in long-run equilibrium.
Inflation : 5%
Output : $ 10,200
Marking:
a)
Inflation
Output
b)
Inflation
Output
Overall Mark: 5/5

DONE
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Lab 8 (Question 3)
Name: Ahmad Hashem
Date: 2019-03-25 1:39
Suppose the central bank's monetary policy sets the interest rate according to the function:
i = 2 + 2(π - π*) with π* = 2,
and aggregate expenditure is:
AE = 84 + 0.2Y - 6i
a) What is the equation for the ADπ curve? Use 'PI' to represent π when entering your equation.
Y = (96-12*PI)/0.8
b) Plot the ADπ curve in the graph below.
Marking:
(a)
ADπ equation
(b)
Aggregate Demand
Overall Mark: 6/6

DONE
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Lab 8 (Question 4)
Name: Ahmad Hashem
Date: 2019-03-25 1:44
In recent years the federal government reduced the GST from 8 percent to 4 percent.
a) Use an AD/AS/Yp diagram to illustrate and explain the effects of this tax change on equilibrium output and inflation.
b) If the economy was in equilibrium at potential output and the target inflation rate before the tax cut, what monetary policy
action, if any, would be required to maintain those equilibrium conditions after the tax cuts?
The central bank recognizes the effect of the GST cut on the inflation, which does not affect the central bank's measure
of core inflation causing the bank to take no action . Within a year, the effect of the GST cut on inflation is gone
and the economy is at equilibrium at a new equilibrium level .
Marking:
a)
Movement of the AS Curve
You have shifted the line to the Top.
You should have shifted the line to the Bottom.
A cut in an indirect tax like the GST reduces prices on final goods and services, shifting AS down in the graph. The inflation
rate is reduced temporarily but expenditure increases, creating an inflationary gap.

Movement of the AD Curve
You have shifted the line to the Right.
You shouldn't have shifted the line at all.
A cut in an indirect tax like the GST does not affect the AD curve. This curve should not be shifted.
Movement of the Yp Curve

You haven't shifted the line at all.
b)
...equilibrium at a new equilibrium level . ...
Your answer was: a new equilibrium level

The correct answer was: the original equilibrium level
Since the AS curve shift is temporary and the central bank takes no action to affect the supply curve shift, the AS curve will
return to equilibrium after a year at its original inflation rate.
Overall Mark: 1/6

DONE
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Lab 8 (Question 4)
Name: Ahmad Hashem
Date: 2019-03-25 1:47
In recent years the federal government reduced the GST from 5 percent to 2 percent.
a) Use an AD/AS/Yp diagram to illustrate and explain the effects of this tax change on equilibrium output and inflation.
b) If the economy was in equilibrium at potential output and the target inflation rate before the tax cut, what monetary
policy action, if any, would be required to maintain those equilibrium conditions after the tax cuts?
The central bank recognizes the effect of the GST cut on the inflation, which does not affect the central bank's measure
of core inflation causing the bank to take no action . Within a year, the effect of the GST cut on inflation is gone
and the economy is at equilibrium at the original equilibrium level .
Marking:
a)
Movement of the AS Curve
You have shifted the line to the Bottom.
Movement of the AD Curve

Movement of the Yp Curve

b)
Overall Mark: 6/6

DONE
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Lab 9 (Question 1)
Name: Ahmad Hashem
Date: 2019-04-03 16:35
a)
In the diagram, if the central bank's inflation target is π*, AD1 is too strong. In response the central bank
adjusts monetary policy:
by fixing interest rates at current levels to allow AD to remain at AD1.
by raising interest rates to shift the AD curve to the right.
by lowering its interest rate setting to shift AD to the right.
by raising interest rates to shift the AD curve to the left.
b) The speed of an economy's built-in adjustment to persistent output gaps depends on:
commitments by labour and management to fixed long term wage and price contracts.
the degree of wage and price flexibility in labour and product markets.
public concern about the government sector's budget balance.
the absence of a central bank and monetary policy interference.
c) The economy's built in adjustment to eliminate persistent recessionary gaps depends on labour market
adjustments to unemployment rates higher then the natural rate. However, wage rates do not respond
quickly because:
workers and employers can never agree on new wage rates and job action results.
wage rates are set by annual auctions for labour services.
different workers and employers have wage rate contracts that overlap in time.
wage bargaining is a pleasant process that both workers and employers enjoy.
d)
Consider the diagram presented. If a fall in investment expenditures such as fall in residential
construction shifted the AD curve from AD0 to AD1 the equilibrium inflation rate would fall:
if exports fell in addition to the fall in investment expenditure.
only if the central bank lowered its inflation rate target and changed its monetary policy accordingly.
regardless of the reaction of the central bank.
as a result of the fiscal policy reaction implemented by the government.
e) An upward (or leftward) shift in a short run aggregate supply curve giving the relationship between
inflation rates and output would be caused by:
a fall in the rate at which money wage rates are increasing.
rise in the rate at which money wage rates are increasing.
a cut in the rate of indirect taxation like the GST or a harmonized sales tax (HST).
an increase in the productivity of labour.
Marking:
(a) Your answer was : by raising interest rates to shift the AD curve to the left.
(b) Your answer was : the absence of a central bank and monetary policy interference.
The correct answer is: the degree of wage and price flexibility in labour and product markets.
(c) Your answer was : wage rates are set by annual auctions for labour services.
The correct answer is: different workers and employers have wage rate contracts that overlap in time.
(d) Your answer was : regardless of the reaction of the central bank.
The correct answer is: only if the central bank lowered its inflation rate target and changed its monetary
policy accordingly.
(e) Your answer was : rise in the rate at which money wage rates are increasing.
Overall Mark: 2/5

DONE
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Lab 9 (Question 1)
Name: Ahmad Hashem
Date: 2019-04-03 22:07
a) The economy's built in adjustment to eliminate persistent recessionary gaps depends on labour market
adjustments to unemployment rates higher then the natural rate. However, wage rates do not respond
quickly because:
workers and employers can never agree on new wage rates and job action results.
wage bargaining is a pleasant process that both workers and employers enjoy.
different workers and employers have wage rate contracts that overlap in time.
wage rates are set by annual auctions for labour services.
b)
In the diagram, if the central bank's inflation target is π*, AD1 is too strong. In response the central bank
adjusts monetary policy:
by raising interest rates to shift the AD curve to the right.
by lowering its interest rate setting to shift AD to the right.
by fixing interest rates at current levels to allow AD to remain at AD1.
by raising interest rates to shift the AD curve to the left.
c) In terms of the production function Y = A × F(L, K) where A is the state of technology, L the level of
employment and K the stock of capital, the level of potential output and the long run aggregate supply
curve, LAS, is defined by:
a fixed unemployment rate, a fixed stock of capital and a given state of technology.
a fixed state of technology with different capital stocks and unemployment rates.
a fixed stock of capital, a given state of technology and unemployment at the natural rate.
a fixed stock of capital and a given state of technology and the current unemployment rate.
d)
In the diagram, if wage rates had been increasing at 2% a year and the inflationary gap increased that
rate of wage growth to 3% a year:
AS would be unaffected and remain at AS0 and real GDP would be unchanged at Y1.
AS would shift up from AS0 to AS1 and real GDP would fall to Y1 at π = π1.
AS would shift down from AS1 to AS0 with real GDP at YP.
AS would be unaffected but real GDP would fall from Y0 to YP at π = 2%.
e) A simple Phillips curve shows the relationship between:

the rate at which money wage rates are changing and the output gap.
bond prices and interest rates.
interest rates and inflation rates
the government sector's budget balance and the inflation rate.
Marking:
(a) Your answer was : different workers and employers have wage rate contracts that overlap in time.
(b) Your answer was : by raising interest rates to shift the AD curve to the left.
(c) Your answer was : a fixed stock of capital, a given state of technology and unemployment at the natural
rate.
(d) Your answer was : AS would shift up from AS0 to AS1 and real GDP would fall to Y1 at π = π1.
(e) Your answer was : the rate at which money wage rates are changing and the output gap.

Overall Mark: 5/5
DONE
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Lab 9 (Question 2)
Name: Ahmad Hashem
Date: 2019-04-03 22:11
Marking:
a) Real exchange The relative price of goods and services from different countries measured in a
rate common currency.
b) Convertible A national currency that can be freely exchanged for a different national currency at the
currency prevailing exchange rate.
c) Financial The record of capital transfers and the purchases and sales of real and financial
account assets.
d) Currency appreciation A reduction (increase) in the international value of the domestic currency.
The correct answer was 'Devaluation (revaluation)'. This will cost you 1 mark.
e) Fixed exchange An exchange rate set by government policy that does not change as a result of
rate changes in market conditions.
Overall Mark: 4/5

DONE
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Lab 9 (Question 2)
Name: Ahmad Hashem
Date: 2019-04-03 22:19
Marking:
a) Real exchange The relative price of goods and services from different countries measured in a
b) Currency A rise in external value of the domestic currency that lowers the domestic currency
appreciation price of foreign currency.
c) Fixed exchange An exchange rate set by government policy that does not change as a result of
d) Financial The record of capital transfers and the purchases and sales of real and financial
account assets.
e) Change in official Supply and demand in the foreign exchange market determine the equilibrium
international reserves exchange rate without central bank intervention.
The correct answer was 'Floating or flexible exchange rate'. This will cost you 1 mark.
Overall Mark: 4/5

DONE
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Lab 9 (Question 2)
Name: Ahmad Hashem
Date: 2019-04-03 22:26
Marking:
a) Currency A rise in external value of the domestic currency that lowers the domestic currency
appreciation price of foreign currency.
b) Real exchange The relative price of goods and services from different countries measured in a
c) Official exchange reserves Government foreign currency holdings managed by the central bank.
d) Perfect capital Very small differences in expected returns cause very large international flows of
mobility funds.
e) Fixed exchange An exchange rate set by government policy that does not change as a result of
Congratulations, your answers are all correct!
Overall Mark: 5/5

DONE
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Lab 9 (Question 3)
Name: Ahmad Hashem
Date: 2019-04-03 22:32
Complete the following.
a) Complete the following statement.
Monetary policies are effective in affecting GDP under a flexible exchange rate system because if the central bank cuts
interest rates, we demand more foreign assets, our C$ depreciate , our exports rise and our imports
fall , so our Y rises.
b) Complete the following statement.
Monetary policies are ineffective in affecting GDP under a fixed exchange rate system because if the central bank cuts
interest rates, we demand more foreign assets, we sell C$ and demand US$, but this creates pressure for C$ to
depreciate . BOC has to sell us US$ and buy our C$, causing the money supply to fall so interest rates rise
back to where they were. Ultimately there is a recessionary effect on the economy.
Marking:
a)
b)
...Ultimately there is a recessionary effect on the...
The answer should be 'a negligible', but you have not selected this. You will lose 1 mark for this part.
When exchange rates are fixed an interest rate cut and the associated drop in demand force the central bank to buy up
currency and decrease the money supply. Interest rates independently self correct and the economy experiences
negligible change since the fixed exchange rate ensures the import/export situation remains unchanged.
Overall Mark: 7/8

DONE
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Lab 9 (Question 3)
Name: Ahmad Hashem
Date: 2019-04-03 22:33
Complete the following.
a) Complete the following statement.
Monetary policies are effective in affecting GDP under a flexible exchange rate system because if the central bank cuts
interest rates, we demand more foreign assets, our C$ depreciate , our exports rise and our imports
fall , so our Y rises.
b) Complete the following statement.
Monetary policies are ineffective in affecting GDP under a fixed exchange rate system because if the central bank cuts
interest rates, we demand more foreign assets, we sell C$ and demand US$, but this creates pressure for C$ to
depreciate . BOC has to sell us US$ and buy our C$, causing the money supply to fall so interest rates rise
back to where they were. Ultimately there is a negligible effect on the economy.
Marking:
a)
b)
Overall Mark: 8/8

DONE
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Lab 9 (Question 4)
Name: Ahmad Hashem
Date: 2019-04-03 22:52

In a hypothetical world, between last year and this year, the CPI in The United States of America rose from
115 to 130 and the CPI in Japan rose from 90 to 100. The United States of America's currency unit, the
Dollar(USD), was worth 1.08(USD) per Canadian dollar last year and is worth 0.97(USD) per Canadian
dollar this year. Japan's currency unit, the Yen(JPY), was worth 88.89(JPY) per Canadian dollar last year
and is worth 88.84(JPY) per Canadian dollar this year.
a) Find the percentage change from last year to this year in The United States of America's nominal
exchange rate with Japan (measured as # of Dollars/1 Japan Yen).
NOTE: Please keep as much precision as possible throughout your calculations and round off your final
answer to two decimal places.
Percentage change = 0%
b) Find the percentage change from last year to this year in The United States of America's real exchange
rate with Japan. Again, assume that we are measuring the nominal exchange rate portion as the # of
Dollars/1 Japan Yen.
Percentage change = -0.11%
c) Relative to Japan, do you expect The United States of America's exports to be helped or hurt by these
changes in exchange rates?
Helped
Hurt
Marking:
a)
The correct answer was: -10.13%
To calculate the nominal exchange rate, we must use the following formula:
The United States of America's exchange rate (per
The United States of America's nominal exchange
Canadian dollar)
rate with Japan =
Japan's exchange rate (per Canadian dollar)
First, we must calculate The United States of America's nominal exchange rate with Japan for both last
year and this year :
1.08
Nominal exchange rate last year = = 0.01214985
88.89
0.97
Nominal exchange rate this year = = 0.01091851
88.84
Now we can calculate the percentage change in the nominal exchange rate using the following formula:
change in nominal exchange rate
% Change = × 100%
original nominal exchange rate
b)
The correct answer was: -11.67%
You have used the correct method to find the change in real exchange rate, but you have not entered the
answer as a percentage.
You need to multiply your answer by 100 to get the answer as a percentage.
c)
Your answer was : Hurt.
Overall Mark: 5/10

DONE
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Lab 9 (Question 4)
Name: Ahmad Hashem
Date: 2019-04-03 23:00

In a hypothetical world, between last year and this year, the CPI in The United States of America rose from
100 to 110 and the CPI in Japan rose from 85 to 95. The United States of America's currency unit, the
Dollar(USD), was worth 0.98(USD) per Canadian dollar last year and is worth 0.89(USD) per Canadian
dollar this year. Japan's currency unit, the Yen(JPY), was worth 88.89(JPY) per Canadian dollar last year
and is worth 88.84(JPY) per Canadian dollar this year.
a) Find the percentage change from last year to this year in The United States of America's nominal
exchange rate with Japan (measured as # of Dollars/1 Japan Yen).
b) Find the percentage change from last year to this year in The United States of America's real exchange
rate with Japan. Again, assume that we are measuring the nominal exchange rate portion as the # of
Dollars/1 Japan Yen.
c) Relative to Japan, do you expect The United States of America's exports to be helped or hurt by these
changes in exchange rates?
Helped
Hurt
Marking:
a)
b)
c)
Your answer was : Hurt.
Overall Mark: 10/10

DONE
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Lab 9 (Question 5)
Name: Ahmad Hashem
Date: 2019-04-03 23:03
Suppose a country has a current account surplus of $9 billion, but a financial account deficit of $6 billion.
a) Is its balance of payments a deficit, surplus or neither?
The balance of payments is a surplus.
b) What change in official exchange reserves would you see?

Note: Keep $0 for the second part if you think there is no change.
The official exchange reserves would increase by $3 billion.
c) Is the central bank buying or selling foreign currency?
The central bank is buying foreign currency.
d) What effect does the central bank's foreign currency purchase or sale have on the monetary base?
The monetary base increases.
Marking:
a)
Your answer was: a surplus
The correct answer was: neither
The balance of payments is always zero, neither deficit nor surplus. Any deficit or surplus on the current
account that is not offset by a surplus or deficit on financial account results in a change of official reserve
holdings to balance the balance of payments.
b)
Type of Change
Amount of Change
c)
Your answer was: buying
d)
Your answer was: increases
Overall Mark: 6/8

DONE
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Lab 9 (Question 5)
Name: Ahmad Hashem
Date: 2019-04-03 23:03
Suppose a country has a current account surplus of $18 billion, but a financial account deficit of $21 billion.
a) Is its balance of payments a deficit, surplus or neither?
The balance of payments is neither.
b) What change in official exchange reserves would you see?

Note: Keep $0 for the second part if you think there is no change.
The official exchange reserves would decrease by $3 billion.
c) Is the central bank buying or selling foreign currency?
The central bank is selling foreign currency.
d) What effect does the central bank's foreign currency purchase or sale have on the monetary base?
The monetary base decreases.
Marking:
a)
Your answer was: neither
b)
Type of Change
Amount of Change
c)
Your answer was: selling
d)
Your answer was: decreases
Overall Mark: 8/8

DONE
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Lab 9 (Question 6)
Name: Ahmad Hashem
Date: 2019-04-03 23:08

How will an expansionary monetary policy affect exchange rates, via income?
Expansionary Monetary Policy

Interest rates increase
The domestic currency appreciates
Trade deficit increases
Marking:
The first effect should be 'Income increases'.

The second effect should be 'Imports increase'.
The third effect should be 'The domestic currency depreciates'.
As money supply rises, income expands. When income rises, imports rise while exports are unaffected. To
buy foreign products, Canadian citizens need foreign currency, which they must buy with dollars. So when
Canadian imports rise, the supply of dollars to the foreign exchange market increases as Canadians sell
dollars to buy foreign currencies to pay for those imports. This decreases the value of the dollar. Therefore,
expansionary monetary policy causes Canadian income to rise, imports to rise, and the value of the dollar
to fall via the income path.
You will lose 12 marks for this question.
Overall Mark: 0/12

DONE
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Lab 9 (Question 6)
Name: Ahmad Hashem
Date: 2019-04-03 23:10

How will an expansionary monetary policy affect exchange rates, via interest rates?
Expansionary Monetary Policy

Interest rates decrease
The domestic currency depreciates
Marking:
You have answered this question correctly.
Overall Mark: 12/12

DONE
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Lab 9 (Question 7)
Name: Ahmad Hashem
Date: 2019-04-03 23:15

Suppose that in 2008, the price levels in the United States and Argentina were 100. By 2013, the price
level in the United States has increased to 160, while the price level in Argentina rose to 170. Suppose the
exchange rate between two countries was 1USD = 1.2ARS
Note: Please round your answers to 2 decimal places.
a) Find the inflation rate of the United States.
the United States's inflation rate = 60%
b) Find the inflation rate of Argentina.
Argentina's inflation rate = 70%
c) What was the 2008 real exchange rate (from the perspective of Argentina)?
2008 real exchange rate = 1.2
d) What must the new nominal exchange rate have been in 2013 (from the perspective of Argentina) if the
real exchange rate remained constant?
2013 nominal exchange rate = 1.27
e) Suppose Argentina has a fixed exchange rate system against the American dollar. The initial nominal
exchange rate is fixed. As a result, did Argentina's real exchange rate appreciate or depreciate?
Real exchange rate will depreciate
f) Would you expect Argentina's net exports to rise or fall as a result?

Net exports will fall
g) Is the Argentine peso overvalued or undervalued?

Argentine peso is overvalued
Marking:
a)
b)
c)
d)
e)
Your answer was: depreciate
The correct answer was: appreciate
The actual E = 1.2 × 160 ÷ 170 = 1.13. This means Argentina has a real exchange rate appreciation.
f)
g)
Your answer was: overvalued
Overall Mark: 12/14

DONE
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Lab 9 (Question 7)
Name: Ahmad Hashem
Date: 2019-04-03 23:21

Suppose that in 2009, the price levels in the United States and Canada were 100. By 2014, the price level
in the United States has increased to 240, while the price level in Canada rose to 190. Suppose the
exchange rate between two countries was 1USD = 2CAD
b) Find the inflation rate of Canada.
Canada's inflation rate = 190%
c) What was the 2009 real exchange rate (from the perspective of Canada)?
2009 real exchange rate = 2
d) What must the new nominal exchange rate have been in 2014 (from the perspective of Canada) if the
real exchange rate remained constant?
e) Suppose Canada has a fixed exchange rate system against the American dollar. The initial nominal
exchange rate is fixed. As a result, did Canada's real exchange rate appreciate or depreciate?
Real exchange rate will depreciate
f) Would you expect Canada's net exports to rise or fall as a result?

Net exports will rise
g) Is the Canadian dollar overvalued or undervalued?

Canadian dollar is undervalued
Marking:
a)
You can use the following formula to calculate inflation rate:
Price Level2014 - Price Level2009
Inflation rate = × 100% = 240 - 100 × 100% = 140%
Price Level2009 100
b)
You can use the following formula to calculate inflation rate:

Price Level2014 - Price Level2009
Inflation rate = × 100% = 190 - 100 × 100% = 90%
Price Level2009 100
c)
d)
e)
Your answer was: depreciate
f)
Your answer was: rise
g)
Your answer was: undervalued
Overall Mark: 10/14

Your mark of 10/14 is less than your previous best mark of 12/14 and will not be
recorded.
DONE
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Lab 9 (Question 7)
Name: Ahmad Hashem
Date: 2019-04-03 23:24

Suppose that in 2009, the price levels in the United States and Japan were 100. By 2013, the price level in
the United States has increased to 190, while the price level in Japan rose to 230. Suppose the exchange
rate between two countries was 1USD = 1.6JPY
b) Find the inflation rate of Japan.
Japan's inflation rate = 130%
c) What was the 2009 real exchange rate (from the perspective of Japan)?
2009 real exchange rate = 1.6
d) What must the new nominal exchange rate have been in 2013 (from the perspective of Japan) if the real
exchange rate remained constant?
e) Suppose Japan has a fixed exchange rate system against the American dollar. The initial nominal
exchange rate is fixed. As a result, did Japan's real exchange rate appreciate or depreciate?
Real exchange rate will appreciate
f) Would you expect Japan's net exports to rise or fall as a result?

Net exports will fall
g) Is the Japanese yen overvalued or undervalued?

Japanese yen is overvalued
Marking:
a)
b)
c)
d)
e)
Your answer was: appreciate
f)
g)
Your answer was: overvalued
Overall Mark: 14/14

DONE
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Lab 9 (Question 8)
Name: Ahmad Hashem
Date: 2019-04-03 23:27
Suppose the initial exchange rate is $1.30 CDN for $1 US. After 10 years, the United States price level has
risen from 100 to 130, and the Canadian price level has risen from 100 to 155.
Note: Please be sure to be as accurate as possible and to round your answers to two decimal places.
a) Which country experienced the higher inflation rate?
Canada experienced higher inflation.
b) What nominal exchange rate would preserve the initial real exchange rate?
$1.55 CDN for $1 US
c) If the initial nominal exchange rate remained the same after 10 years, Canada's real exchange rate with
the U.S. has:
Canada's real exchange rate with the U.S. has appreciated.
Marking:
(a)
Your answer was: Canada
(b)
(c)
Your answer was: appreciated
Overall Mark: 6/6

DONE
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Lab 9 (Question 9)
Name: Ahmad Hashem
Date: 2019-04-03 23:30
Indicate whether each of the following creates a demand for, or a supply of, European euros in foreign
exchange markets.
a) A Canadian importer purchases a shipload of Chianti wine.

demand for
supply of
Marking:
Your answer was : demand for.

b) A Canadian government bond held by an Austrian citizen matures and the loan amount is paid
back to that person.
demand for
supply of
Marking:
Your answer was : supply of.

The correct answer is: demand for.
The Canadian government will need to purchase euros to repay the Austrian citizen.
c) It is widely believed that the international value of the euro will fall in the near future.
supply of
demand for
Marking:
Your answer was : supply of.

Overall Mark: 3/5

DONE
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Lab 9 (Question 9)
Name: Ahmad Hashem
Date: 2019-04-03 23:31
Indicate whether each of the following creates a demand for, or a supply of, European euros in foreign
exchange markets.
a) Canada incurs a balance of payments deficit in its transactions with Germany.

supply of
demand for
Marking:

The correct answer is: supply of.
It causes a drawing down of official international reserves of euros.
b) A Canadian university student decides to spend a year studying at the Sorbonne.

demand for
supply of
Marking:

c) A Canadian importer purchases a shipload of Chianti wine.

demand for
supply of
Marking:

Overall Mark: 3/5

DONE
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Lab 9 (Question 10)
Name: Ahmad Hashem
Date: 2019-04-03 23:45

Draw a foreign exchange market diagram to show equilibrium with a flexible or floating exchange rate. Suppose the initial
exports X is $110, the supply curve is given by er = 0.01X, and the demand curve is given by er = 2.2 - 0.01X.
a) Plot the supply and demand curves of the foreign exchange market. Plot the new supply curve if the supply of US dollars
increases at all levels of exports by $30.
b) How does the increase in exports affect the foreign exchange rate?
The increase in exports increases the balance on current account balance and reduces the supply of foreign
exchange derived from export receipts. The exchange rate falls by 0.15 to maintain equilibrium in the balance
of payments. The supply curve shifts to the right .
c) How do exports and imports change to give balance of payments equilibrium at the new equilibrium exchange rate?
The increase in exports would create a surplus on the current account. The profitability and competitiveness of
exports is increased . The supply of foreign exchange from exports is reduced to establish equilibrium.
d) What are the effects on the holdings of official reserves?
With flexible rates the foreign exchange market adjusts with bank intervention and there is an increase in official reserves.
Marking:
a)
Demand Curve
Supply Curve
New Supply Curve

b)
...in exports increases the balance on...

...account balance and reduces the supply of...
Your answer was: reduces

The correct answer was: increases
The increase in exports increases the supply of foreign exchange in the foreign exchange market.
...rate falls by 0.15 to maintain...

...shifts to the right . ...
Your answer was: right

c)
...would create a surplus on the current...
Your answer was: surplus

...of exports is increased . The supply of...

The correct answer was: reduced
The fall in the exchange rate lowers the domestic price of imports and reduces the profitability and competitiveness of
exports.
...from exports is reduced to establish...
Your answer was: reduced

d)
...market adjusts with bank intervention and there is ...
Your answer was: with bank intervention
The correct answer was: without intervention
With flexible rates the foreign exchange market adjusts without intervention from the central bank.
... and there is an increase in official...
Your answer was: an increase

The correct answer was: no change
There is no change in official reserve holdings since the central bank does not intervene.
Overall Mark: 11/15

DONE
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Lab 9 (Question 10)
Name: Ahmad Hashem
Date: 2019-04-03 23:52

Draw a foreign exchange market diagram to show equilibrium with a fixed exchange rate. Suppose the initial exports X is $110, the supply
curve is given by er = 0.01X, and the demand curve is given by er = 2.2 - 0.01X.
a) Plot the supply and demand curves of the foreign exchange market. Plot the new supply curve if the supply of US dollars increases at all
levels of exports by $30.
b) How does the increase in exports affect the current account balance and conditions in the foreign exchange market when the exchange
rate is fixed?
The increase in exports increases the balance on current account in the balance of payments and increases the
supply of foreign exchange in the foreign exchange market. In the diagram the increase in the current account balance,
measured in Canadian dollars is $ 30 . The supply curve shifts to the right .
c) The purchase or sale of foreign exchange reserves is required if the central bank defends the fixed exchange rate. Explain the bank's
decision.
To defend the fixed exchange rate at ER0 the central bank buys foreign exchange from the official reserves
equal to the difference between the market supply and demand at the fixed rate ER0.
d) What are the effects on the holdings of official reserves and the monetary base?
The central bank sale of US$ would increase holdings of monetary base but not the official reserves .
Marking:
a)
Demand Curve
Supply Curve
New Supply Curve

Your line is close to the correct slope, but these points from your answer are not on the correct line: (30, 0.05)
The new supply curve has the same slope as the original supply curve but is shifted 30 units to the right.
b)

...of payments and increases the supply of...

...Canadian dollars is $ 30 . The supply curve...

In the diagram the increase in the current account balance, measured in Canadian dollars is $33 (= ER0 × (U1 - U0) = 1.1 × $30).

c)
...the central bank buys foreign exchange...
Your answer was: buys

...from the official reserves ...
Your answer was: official reserves

... equal to the difference...
Your answer was: equal to

d)
...sale of US$ would increase holdings of ...

... holdings of monetary base but not the official reserves . ...
Your answer was: monetary base but not the official reserves
The correct answer was: both the official reserves and the monetary base
The change in holdings affects both the official reserves and the monetary base.
Overall Mark: 12/15

DONE
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Lab 9 (Question 10)
Name: Ahmad Hashem
Date: 2019-04-03 23:57

Draw a foreign exchange market diagram to show equilibrium with a fixed exchange rate. Suppose the initial exports X
is $120, the supply curve is given by er = 0.01X, and the demand curve is given by er = 2.4 - 0.01X.
a) Plot the supply and demand curves of the foreign exchange market. Plot the new supply curve if the supply of US
dollars increases at all levels of exports by $10.
b) How does the increase in exports affect the current account balance and conditions in the foreign exchange market
when the exchange rate is fixed?
The increase in exports increases the balance on current account in the balance of payments and increases the
supply of foreign exchange in the foreign exchange market. In the diagram the increase in the current account balance,
measured in Canadian dollars is $ 12 . The supply curve shifts to the right .
c) The purchase or sale of foreign exchange reserves is required if the central bank defends the fixed exchange rate.
Explain the bank's decision.
To defend the fixed exchange rate at ER0 the central bank buys foreign exchange from the official reserves
equal to the difference between the market supply and demand at the fixed rate ER0.
d) What are the effects on the holdings of official reserves and the monetary base?
The central bank sale of US$ would increase holdings of both the official reserves and the monetary base .
Marking:
a)
Demand Curve
Supply Curve
New Supply Curve

b)

...of payments and increases the supply of...

...Canadian dollars is $ 12 . The supply curve...


c)
...the central bank buys foreign exchange...
Your answer was: buys

...from the official reserves ...
Your answer was: official reserves

... equal to the difference...
Your answer was: equal to

d)
...sale of US$ would increase holdings of ...

... holdings of both the official reserves and the monetary base . ...
Your answer was: both the official reserves and the monetary base
Overall Mark: 15/15

DONE
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Lab 10 (Question 1)
Name: Ahmad Hashem
Date: 2019-04-14 18:37
Suppose you have the following information about an economy:
Average annual rates of growth from 2003 to 2013:
Potential GDP 5.51%

Labour Force 2.1%
Capital Stock 1.8%
Share of labour income in national income: 2/3
Using growth accounting, find the contributions to the annual growth in potential GDP that came from:
Note: Make sure your answers are in percentage form and rounded to two decimal places.
a) Growth in labour force?
Contribution from growth in labour force = 121 %
b) Growth in capital stock?
Contribution from growth in capital stock = 1,212,211 %
c) Improved productivity as measured by the Solow residual?
Contribution from improved productivity = 121,212 %
Marking:
a)
The growth accounting equation is: Y = A + 2/3L + 1/3K

L = Labour force, and as 2/3 of L is contributed to the GDP (Y), that means:
Contribution from growth in labour force = 2/3 × 2.1% = 1.4%.
b)
Your answer was: 1,212,211.00%
The growth accounting equation is: Y = A + 2/3L + 1/3K
K = Capital stock, and as 1/3 of K is contributed to the GDP (Y), that means:
Contribution from growth in capital stock = 1/3 × 1.8% = 0.6%.
c)
Your answer was: 121,212.00%
The Solow residual measured by A is founded by rearranging the growth accounting equation as follows: A
= Y - 2/3L - 1/3K
Y is given in the question (Potential GPD = 5.51%), we found 2/3L in part a) to be = 1.4%, and 1/3K in part
b) to be = 0.6%, therefore:
A = Y - 2/3L - 1/3K = 5.51% - 1.4% - 0.6% = 3.51%.
Overall Mark: 0/6

DONE
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Lab 10 (Question 1)
Name: Ahmad Hashem
Date: 2019-04-14 18:43
Suppose you have the following information about an economy:
Average annual rates of growth from 1996 to 2006:
Potential GDP 8.6%

Labour Force 4.2%
Capital Stock 2.4%
Share of labour income in national income: 2/3
Using growth accounting, find the contributions to the annual growth in potential GDP that came from:
Note: Make sure your answers are in percentage form and rounded to two decimal places.
a) Growth in labour force?
Contribution from growth in labour force = 2.8 %
b) Growth in capital stock?
Contribution from growth in capital stock = 0.8 %
c) Improved productivity as measured by the Solow residual?
Contribution from improved productivity = 5 %
Marking:
a)
b)
c)

Overall Mark: 6/6
DONE
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Lab 10 (Question 2)
Name: Ahmad Hashem
Date: 2019-04-14 19:14
Consider two countries with the same level of potential GDP, say $100 billion, today. Suppose potential
GDP grows at an annual rate of 4.8 percent in Country One and 3.1 percent in Country Two. Based on this
information:
Note: The growth rates will compound to determine real GDP. Keep as much precision as possible during
your calculations. Your final answer should be accurate to at least two decimal places.
(a) What will the potential GDP be of each country 15 years from now?
Potential GDP in Country One = $1,212 billion

Potential GDP in Country Two = $1,212 billion
(b) What will the potential GDP be of each country 25 years from now?
Potential GDP in Country One = $ 22 billion

Potential GDP in Country Two = $22,333 billion
Marking:
(a)
Costs for Country One (Growth rate of 4.8% after 15 years)
Your answer was: $1,212.00 billion
The correct answer was: $202.03 billion
Let g = growth in GDP
GDP after the 1st year of growth = $100 billion × (1 + g) = $100 billion × (1 + 0.048) = $104.80 billion
GDP after the 2nd year of growth = $104.80 billion × 1.048 = $109.83 billion
GDP after the 3rd year of growth = $109.83 billion × 1.048 = $115.10 billion
...
GDP after the 15th year of growth = $192.78 billion × 1.048 = $202.03 billion
Alternatively, this can be calculated as:

Future GDP = Present GDP × (1 + g)time
Yt = Y0 × (1 + g)t
= $100 billion × (1.048)15
= $202.03 billion

Costs for Country Two (Growth rate of 3.1% after 15 years)
GDP after the 1st year of growth = $100 billion × (1 + g) = $100 billion × (1 + 0.031) = $103.10 billion
GDP after the 2nd year of growth = $103.10 billion × 1.031 = $106.30 billion
GDP after the 3rd year of growth = $106.30 billion × 1.031 = $109.59 billion
...

Yt = Y0 × (1 + g)t
= $100 billion × (1.031)15
= $158.08 billion
(b)
Your answer was: $22.00 billion
GDP after the 15th year of growth = $192.78 × (1 + g) = $192.78 × (1 + 0.048) = $202.03 billion
...

Yt = Y0 × (1 + g)t
= $100 billion × (1.048)25
= $322.87 billion

GDP after the 15th year of growth = $153.33 × (1 + g) = $153.33 × (1 + 0.031) = $158.08 billion
...
Yt = Y0 × (1 + g)t
= $100 billion × (1.031)25
= $214.52 billion
Overall Mark: 0/4

DONE
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Lab 10 (Question 2)
Name: Ahmad Hashem
Date: 2019-04-14 19:23
Consider two countries with the same level of potential GDP, say $100 billion, today. Suppose potential
GDP grows at an annual rate of 3.9 percent in Country One and 4.5 percent in Country Two. Based on this
information:
Note: The growth rates will compound to determine real GDP. Keep as much precision as possible during
your calculations. Your final answer should be accurate to at least two decimal places.
(a) What will the potential GDP be of each country 20 years from now?
Potential GDP in Country One = $214.94 billion

Potential GDP in Country Two = $241.17 billion
(b) What will the potential GDP be of each country 45 years from now?
Potential GDP in Country One = $559.37 billion

Potential GDP in Country Two = $724.82 billion
Marking:
(a)

(b)

Overall Mark: 4/4

DONE
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Lab 10 (Question 3)
Name: Ahmad Hashem
Date: 2019-04-14 19:24
Suppose technology remains constant while labour force grew at a rate of 2.9 percent a year, capital stock
grew at 3.2 percent per year, and the share of labour income in national income was 65 percent, how fast
would potential GDP grow?
Note: Keep as much precision as possible during your calculations. Your final answer should be in
percentage form and accurate to at least two decimal places.
Rate of potential GDP growth = 132,213%
Marking:
Your answer was: 132,213.00%

Rate of potential GDP growth = 2.9% × 0.65 + 3.2% × 0.35 = 3.01%.
You will lose 2 marks for this question.
Overall Mark: 0/2

DONE
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Lab 11 (Question 1)
Name: Ahmad Hashem
Date: 2019-04-14 19:27
Suppose the economy represented by the table below had a population of 26,300 in 2019:
Consumer Price
(2014 = 100)
2017 1,102 105 12,800 11,750
2018 1,242 113 14,100 12,900
2019 1,362 120 15,300 14,300
a) What were the participation and employment rates in the economy in the year 2019?
What is the participation rate in the year 2019? 123 %

What is the employment rate in the year 2019? 21 %
b) Suppose a mild recession in the year 2019 discouraged some unemployed workers and they stop
looking for work. As a result, the participation rate fell to 57.57 percent. How would the unemployment rate
and the employment rate be affected? Why?
The unemployment rate will: Rise

The employment rate will: Fall
Marking:
a)
Participation Rate
Labour force 15,300

Participation rate = × 100% = × 100% = 58.17%
Total population 26,300
Employment Rate
Employment 14,300
Employment rate = × 100% = × 100% = 54.37%
Total population 26,300
b)
Unemployment Rate
Your answer was: Rise
The correct answer was: Fall
The labour force will decline to 57.57% × 26,300 = 15,142.2.
With fewer people actually looking for work the unemployment rate will fall.
15,142.2 - 14,300
× 100% = 5.56% compared to the original unemployment rate of 6.54%.
15,142.2
Employment Rate
Your answer was: Fall
The correct answer was: Remain unchanged
The rate of employment will not change because even though the participation rate fell the question stated
that it affected only unemployed people.
Overall Mark: 0/8

DONE
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Lab 11 (Question 3)
Name: Ahmad Hashem
Date: 2019-04-14 23:03

The Canadian economy is described below.
C = 60 + 0.7YD (Consumption)
I = 330 (Investment spending)
G = 280 (Government purchases)
NT = 0.2Y (Percentage taxes)
X = 30 (Exports are constant)
IM = 0.06Y (Imports depend positively on our own Y)
a) Calculate the equilibrium Y.
Equilibrium = 673.08
b) Find the autonomous multiplier.
Multiplier = 0.96
c) Find the government budget balance (BB), given your Y in (a).
Budget Balance = -145.38
d) Oil prices have been dropping recently. Lower crude oil prices translate to lower costs for gasoline,
plastic and many products. Suppose the lower oil prices translate to our investment spending rising from
330 to 530 due to a stronger investment confidence. Find the new Y.
New Equilibrium = 865.39
e) Find the BB as a result of the rise in investment spending.
Budget Balance = -106.92
f) Is this change in BB due to an increase in government spending, i.e., is the Canadian government to be
blamed?
Yes
No
g) Suppose the government wants to push the economy back to the Y level in (a) but with the investment
spending still at I = 530. Find the new G necessary.
New Government Purchases = 80
h) Also find new BB with the government spending in (g) and the investment spending = 530.
New Budget Balance = 54.62
Marking:
(a)
Equilibrium
Aggregate expenditure is:

AE = C + I + G + X - IM, which, by substitution, is
AE = 60 + 0.7(1 - 0.2)Y+ 330 + 280 + 30 - 0.06Y
AE = 700 + 0.5Y
National income and output are in equilibrium when national income and planned aggregate expenditure
are equal. This is the condition:
Y = AE = 700 + 0.5Y
Using this condition and solving for Y we have:

Y = 700 ÷ (1 - 0.5) = 1,400
(b)
Multiplier
Each extra dollar of national income raises aggregate expenditure on domestically produced goods and
services by c(1 - t) - m, which is the slope of the AE function.
In an economy, the multiplier becomes:

1 1
Multiplier = = =2
1 - [c(1 - t) - m] 1 - [0.7(1 - 0.2) - 0.06]
(c)
Budget Balance
(d)
New Equilibrium
Aggregate expenditure is:

AE = C + I + G + X - IM, which, by substitution, is
AE = 60 + 0.7(1 - 0.2)Y+ 530 + 280 + 30 - 0.06Y
AE = 900 + 0.5Y
National income and output are in equilibrium when national income and planned aggregate expenditure
are equal. This is the condition:
Y = AE = 900 + 0.5Y
Using this condition and solving for Y we have:

Y = 900 ÷ (1 - 0.5) = 1,800
(e)
Budget Balance
(f)
Change in Budget Balance
Your answer was : No.
(g)
New Government Purchases
(h)
New Budget Balance
Overall Mark: 8/14

DONE
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Lab 11 (Question 4)
Name: Ahmad Hashem
Date: 2019-04-14 23:15

Suppose that Person A deposits $100 (cash) at Bank A. Complete the following questions.
a) Suppose Bank A realizes that, on average, its customers only withdraw a portion of their deposits, and
so it can lend out some money to other customers. Bank A now chooses the reserve ratio to be 25% or
0.25. Bank A lends out the remaining amount of money as loans to Person B. Record the effect of this
transaction on the balance sheet below:
Assets Liabilities
Reserves = $0 Deposits = $0
Loans = $0
b) Person B borrows this money as loans from Bank A and pays to Person C. Suppose Person C deposits
this amount with Bank B. Bank B, similar to Bank A, also chooses a reserve ratio of 0.25 and issues the
remaining cash as loans to Person D. Record the effect of this transaction on the balance sheet below:
Assets Liabilities
Loans = $0
c) Person D borrows this money as loans from Bank B and pays to Person E. Suppose Person E deposits
this amount with Bank C. Bank C also chooses a reserve ratio of 0.25 and issues the remaining cash as
loans to Person F. Record the effect of this transaction on the balance sheet below:
Assets Liabilities
Loans = $0
d) What is the money multiplier? Use your answer to find the amount of new money supply created.
Money multiplier = 0
Amount of new money created = $ 0
e) Suppose the reserve ratio is now 0.3. If Person A had deposited his $100 now, what would be the
amount of money created now?
Amount of new money created = $0
Marking:
(a)
Bank A's Reserves
Bank A's reserves is equal to the amount of cash deposited by Person A multiplied by Bank A's reserve
ratio. So, the reserves for Bank A is equal to $100 × 0.25 = $25.
Bank A's Loans

Bank A's loans is equal to the amount of cash deposited by Person A subtracted by Bank A's reserves. So,
the loans for Bank A is equal to $100 - $25 = $75.
Bank A's Deposits

Bank A's deposits is equal to the amount Person A deposited, which is $100.
(b)
Bank B's Reserves
Bank B's reserves is equal to the amount of cash deposited by Person C (which is equal to the amount of
loans in Bank A) multiplied by Bank B's reserve ratio. So, the reserves for Bank B is equal to $75 × 0.25 =
$18.75.
Bank B's Loans

Bank B's loans is equal to the amount of cash deposited by Person C (which is equal to the amount of
loans in Bank A) subtracted by Bank B's reserves. So, the loans for Bank B is equal to $75 - $18.75 =
$56.25.
Bank B's Deposits

Bank B's deposits is equal to the amount Person C deposited, which is $75.
(c)
Bank C's Reserves
Bank C's reserves is equal to the amount of cash deposited by Person E (which is equal to the amount of
loans in Bank B) multiplied by Bank C's reserve ratio. So, the reserves for Bank C is equal to $56.25 × 0.25
= $14.06.
Bank C's Loans

Bank C's loans is equal to the amount of cash deposited by Person E (which is equal to the amount of
loans in Bank B) subtracted by Bank C's reserves. So, the loans for Bank C is equal to $56.25 - $14.06 =
$42.19.
Bank C's Deposits

Bank C's deposits is equal to the amount Person E deposited, which is $56.25.
(d)
Money Multiplier
The multiplier can be calculated as (1 ÷ 0.25) = 4.
Amount of New Money created

Amount of new money created = Initial loan × Money multiplier = $75 × 4 = $300.
Note: The initial deposit of $100 does not change the money supply, only the composition; so we must start
the creation of money with the initial loan.
(e)
Amount of new money created = Initial loan × Money multiplier = $70 × (1 ÷ 0.3) = $233.33.
Overall Mark: 0/12

DONE
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Lab 11 (Question 5)
Name: Ahmad Hashem
Date: 2019-04-14 23:11
Assume that the following data characterize a hypothetical economy: money supply = $200 billion; quantity
of money demanded for transactions = $165 billion; quantity of money demanded as an asset = $15 billion
at 12 percent interest, increasing by $5 billion for each 2-percentage point fall in the interest rate.
a) What is the equilibrium interest rate?
Equilibrium interest rate = 0%
b) At the equilibrium interest rate, what is the quantity of money supplied?
Money supplied = $0 billion
c) At the equilibrium interest rate, what is the total quantity of money demanded?
Money demanded = $0 billion
d) At the equilibrium interest rate, what is the quantity of money demanded for transactions?
Money demanded for transactions = $0 billion
e) At the equilibrium interest rate, what is the quantity of money demanded as an asset?
Money demanded as an asset = $0 billion
Marking:
a)
Your answer was: 0%
The correct answer was: 4%
To calculate the equilibrium interest rate, we need to find the interest rate where money demanded =
money supplied.
Therefore, money demanded must equal $200 billion, and since money demanded for transactions is $165
billion, the money demanded as an asset must equal $35 billion.
Since we know that the quantity demanded as an asset = $15 billion at 12 percent interest, the interest rate
has to decrease by 4 steps of 2 percentage points to make up for the $20 billion gap between the money
demanded as an asset and the money supplied as an asset. This results in an equilibrium interest rate of
4%.
b)
The correct answer was: $200 billion
The money supplied is given in the question, $200 billion, and will not change due to the interest rate.
c)
The money demanded will be equal to the money supplied ($200 billion) at the equilibrium interest rate.
d)
The money demanded for transactions is given in the question, $165 billion, and will not change due to the
interest rate.
e)
The money demanded an as asset for transactions is the difference between the total money demanded,
and the money demanded for transactions.
Overall Mark: 0/6

DONE

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Question 1 [21 points]

Year 1 Year 2 Year 3

Nominal output value of A ($)

Nominal output value of B ($)

Total nominal economy output ($)

Real output value of A ($)

Real output value of B ($)

Total real economy output ($)

Total marks for this question: 21

Overall Mark: 21/21

a) Rent received on a two-bedroom apartment.

Total marks for this question: 3

Overall Mark: 3/3

Question 3 [12 points]

Note: Please round your answers to two decimal places.

a) Determine the GDP Deflator for 1994.

GDP Deflator = 125

Percentage Growth of Real GDP = 227.71%

c) Calculate the real GDP for 1986.

Real GDP = $124,704

d) Calculate the real GDP for 1994.

Real GDP = $408,672

Total marks for this question: 12

Overall Mark: 12/12

a) What is business investment expenditure?

Investment expenditure = $80

b) If exports are $280, what are imports?

c) In this example, net exports are negative. Could they be positive?

Can net exports be positive? Yes

Total marks for this question: 6

Overall Mark: 6/6

Question 5 [22 points]

2019 to 2020 9.66 %

(b) What was the rate of inflation in 2020 and in 2021?

2019 to 2020 10.91 %

2019 to 2020 9.31 %

Consumer Price Index2020 - Consumer Price Index2019 110

Consumer Price Index2021 - Consumer Price Index2020 117

You will lose 4 marks for this part.

Total marks for this question: 18

Overall Mark: 18/22

Question 5 [22 points]

2021 to 2022 11.98 %

(b) What was the rate of inflation in 2022 and in 2023?

2021 to 2022 11.64 %

2021 to 2022 12.45 %

Employment2022 - Employment2021 12,050

Employment2023 - Employment2022 13,350

You will lose 2 marks for this part.

Total marks for this question: 20

Overall Mark: 20/22

Question 5 [22 points]

2021 to 2022 9.77 %

(b) What was the rate of inflation in 2022 and in 2023?

2021 to 2022 12.61 %

2021 to 2022 18.09 %