Question

show work please, thank you

1. Recently, McDonald's got in trouble for paying its employees with meal vouchers instead of actual money. This didn't allow its workers to save. This mean that workers didn't get to use their money as a:

a. Medium of exchange.

b. Unit of account.

c. Store of value.

d. Discount sharing.

2. The reserve ratio is 20%. If the Fed increases the monetary base by $120, how much does the money supply increase?

a. $24.00.

b. $150.00.

c. $600.00.

d. $1,333.33.

3. If the marginal propensity to consume is 90%, how does spending change when government spending is increased by $200?

a. $180.00.

b. $222.22.

c. $2,000.00.

d. $2,222.22.

4a. What is inflation between 2013 and 2014 using CPI? Show all work.

b. What is inflation between 2014 and 2015 using the GDPD? Show all work.

	Q of futons	P of futons	Q of beds	P of beds
2013	20	9	13	18
2014	22	12	16	20
2015	25	13	16	23

Answer 1

1) Money has a purchasing power. Money can be stored for future use without loss in any value. Thus money's function as store of value means money can be saved for future needs.

answer id (c)

2)change in Money supply = 1/reserve ratio x change in base money

M = 120 x 1/0.20 = 120 x 10/2 = 600

Money supply increases by $600(c)

3) Goverment

dY/dG = 1/(1-mpc)

dY= dG x 1/(1-mpc) = 200 x 1/(1-0.9) = 200 x 1/0.1

dY = 2000 (c)

MPC = dC/dY

dC= dY x mpc

dC= 2000 x 0.9 = 1800

4a) Let 2013 be the base year

cost of the basket in 2013 = 20x 9 +13x18 = $414

cost of the basket in 2014 = 22x12 + 16x20 =$584

CPI =cost os the basket in a year/ cost of the basket in the base year x 100

CPI in 2013 = 414/414 x 100 = 100

CPI in 2014 = 584/414 x 100 = 141

Inflation in 2014 = CPI in 2014-CPI in 2013/CPI in 2013 x 100 = (141-100)/100 x 100 = 41%

4b) nominal GDP in 2014= 22x12 + 16x20 = 584

nominal GDP in 2015 = 25x13 +16x23 = 693

Let base year is 2014

Real GDP in 2014 = 22x12 + 16x20 = 584

Real GDP in 2015 = 25x12 +16x20 = 620

DGP deflator = nominal GDP / Real GDP x 100

GDP deflator in 2014 = 584/584 x 100 = 100

GDP deflator in 2015 = 693/620 x 100 = 111.8

Inflation in 2015 = (GDP deflator in 2015 - GDP deflator in 2014)/GDP Deflator in 2014 x 100 = (111.8-100)/100 x100 = 11.8%