Elucidate effect of this policy action on size money supply

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Reference no: EM1367339

Q. Q1.Consider an economy in which GDP is $7.2 trillion, public saving is -$0.5 trillion (yes, it is a negative number), taxes are $0.8 trillion, private saving is $3.0 trillion, export is $0.4 trillion and import is $0.5 trillion. Estimate consumption, government purchases, national saving and investment. Please show all work.

Q2.Assume that it is year 2014 and economy is showing a clear sign of overheating. Facing with this situation, Fed decides to raise discount rate and Fed funds rate. Illustrate what is effect of policy action described above, especially an increase in discount rate, on size of money supply? On inflation rate, elucidate in detail. Assume that in addition to policy action described above, Fed decides to sell a massive amount of Treasury bonds from open market. Elucidate in detail effect of this policy action on size of money supply.

Q3. Smith, a U.S. citizen, has been working in California as an executive of a U.S. telecommunication company and her yearly salary in 2009 was US$300,000. Her salary was expected to remain unchanged if she continued to work in company. In year 2010, though, she was recruited by a telecommunication company in Mexico, so she started working in Mexico in January 2010, making an yearly salary of US$200,000. Reason why she accepted a job in Mexico with a lower salary than current job is unknown. Assuming that amount of her salary equals amount of her contribution to production in company she works for, how much yearly U.S. GDP and GNP in 2010 changed due to her job relocation? Clearly show your reasoning for your answer.


Reference no: EM1367339

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