1. In response to the COVID-19 outbreak, the Bank of Canada has cut the key interest rate by 50 basis points to help stimulate the economy. (Chapter 28) Complete the following:
   1. Graph the decline in interest rate and discuss what happened.
   2. What parts of the AE function are effected and how? Graph the change in the AE model.
   3. Graph the AD/AS function and close the gap. What gap was closed? What is expected to happen to GDP and price levels as a result of the interest rate cut?

Suppose K is a nonempty compact subset of a metric space X and x ∈ X.

(i) Give an example of an x ∈ X for which there exists distinct points p, r ∈ K such that, for all q ∈ K, d(p, x) = d(r, x) ≤ d(q, x).

(ii) Show, there is a point p ∈ K such that, for all other q ∈ K, d(p, x) ≤ d(q, x).

[Suggestion: As a start, let S = {d(x, y) : y ∈ K} and show there is a sequence (qn) from K such that the numerical sequence (d(x, qn)) converges to inf(S).] 63

(iii) Let X = R \ {0} and K = (0, 1]. Is there a point x ∈ X with no closest point in K? Is K closed, bounded, complete, compact?

(iv) Let E = {e0, e1, . . . } be a countable set. Define a metric d on E by d(ej , ek) = 1 for j not equal k and j, k not equal 0; d(ej , ej ) = 0 and d(e0, ej ) = 1 + 1/j for j not equal 0. Show d is a metric on E. Let K = {e1, e2, . . . } and x = e0. Is there a closest point in K to x? Is K closed, bounded, complete, compact?

Question Set 6: Effectiveness of Monetary and Fiscal Policy in an Open Economy

Respond to and answer the following prompts and questions:

Why does monetary policy have a greater effect on aggregate demand in an open economy than in a closed economy?

Why does fiscal policy have a smaller effect on aggregate demand in an open economy than in a closed economy?

Assume our macroeconomic goals now include price level stability, full employment, economic growth, and exchange rate stability.

Assume the economy is in an inflationary gap, then design a monetary policy to close the gap. In your policy design, complete and answer the following:

Explain the effect of your policy on the macro economy in the short-run.

Illustrate your answer with a graph.

Does the United States achieve the goals of price level stability, full employment, economic growth, and exchange rate stability? Please explain.

Assume the economy is in a recessionary gap, then design a fiscal policy to close the gap. In your policy design, complete and answer the following:

Explain the effect of your policy on the macro economy in the short-run.

Illustrate your answer with a graph.

By pursuing this policy, does the United States achieve the goals of price level stability, full employment, economic growth and exchange rate stability? Please explain.

Exercise 7-7A Effect of recognizing uncollectible accounts on the financial statements: percent of receivables allowance method LO 7-2 [The following information applies to the questions displayed below.] Leach Inc. experienced the following events for the first two years of its operations: Year 1: Issued $29,000 of common stock for cash. Provided $98,900 of services on account. Provided $55,000 of services and received cash. Collected $88,000 cash from accounts receivable. Paid $57,000 of salaries expense for the year. Adjusted the accounting records to reflect uncollectible accounts expense for the year. Leach estimates that 5 percent of the ending accounts receivable balance will be uncollectible. Closed the revenue account. Closed the expense account. Year 2: Wrote off an uncollectible account for $840. Provided $107,000 of services on account. Provided $51,000 of services and collected cash. Collected $100,000 cash from accounts receivable. Paid $84,000 of salaries expense for the year. Adjusted the accounts to reflect uncollectible accounts expense for the year. Leach estimates that 5 percent of the ending accounts receivable balance will be uncollectible. Exercise 7-7A Part c c. What is the net realizable value of the accounts receivable at December 31, Year 1?

[The following information applies to the questions displayed below.]

Leach Inc. experienced the following events for the first two years of its operations:

Year 1:

1. Issued $10,000 of common stock for cash.
2. Provided $78,000 of services on account.
3. Provided $36,000 of services and received cash.
4. Collected $69,000 cash from accounts receivable.
5. Paid $38,000 of salaries expense for the year.
6. Adjusted the accounting records to reflect uncollectible accounts expense for the year. Leach estimates that 5 percent of the ending accounts receivable balance will be uncollectible.
7. Closed the revenue account.
8. Closed the expense account.

Year 2:

1. Wrote off an uncollectible account for $650.
2. Provided $88,000 of services on account.
3. Provided $32,000 of services and collected cash.
4. Collected $81,000 cash from accounts receivable.
5. Paid $65,000 of salaries expense for the year.
6. Adjusted the accounts to reflect uncollectible accounts expense for the year. Leach estimates that 5 percent of the ending accounts receivable balance will be uncollectible.

b. Prepare the income statement, statement of changes in stockholders’ equity, balance sheet, and statement of cash flows for Year 1. (Statement of Cash Flows and Balance Sheet only: Items to be deducted must be indicated with a minus sign.)
  

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Question 4 linked to 5 and 6 of 10 Total

Exercise 7-7A Effect of recognizing uncollectible accounts on the financial statements: percent of receivables allowance method LO 7-2

[The following information applies to the questions displayed below.]

Leach Inc. experienced the following events for the first two years of its operations:

Year 1:

1. Issued $27,000 of common stock for cash.
2. Provided $96,700 of services on account.
3. Provided $53,000 of services and received cash.
4. Collected $86,000 cash from accounts receivable.
5. Paid $55,000 of salaries expense for the year.
6. Adjusted the accounting records to reflect uncollectible accounts expense for the year. Leach estimates that 5 percent of the ending accounts receivable balance will be uncollectible.
7. Closed the revenue account.
8. Closed the expense account.

Year 2:

1. Wrote off an uncollectible account for $820.
2. Provided $105,000 of services on account.
3. Provided $49,000 of services and collected cash.
4. Collected $98,000 cash from accounts receivable.
5. Paid $82,000 of salaries expense for the year.
6. Adjusted the accounts to reflect uncollectible accounts expense for the year. Leach estimates that 5 percent of the ending accounts receivable balance will be uncollectible

Prepare the income statement, statement of changes in stockholders’ equity, balance sheet, and statement of cash flows for Year 1. (Statement of Cash Flows and Balance Sheet only: Items to be deducted must be indicated with a minus sign.)
  

During Year 1 and Year 2, Agatha Corp. completed the following transactions relating to its bond issue. The corporation’s fiscal year is the calendar year. Year 1 Jan. 1 Issued $330,000 of 8-year, 8 percent bonds for $324,000. The annual cash payment for interest is due on December 31. Dec. 31 Recognized interest expense, including the straight-line amortization of the discount, and made the cash payment for interest. Dec. 31 Closed the interest expense account. Year 2 Dec. 31 Recognized interest expense, including the straight-line amortization of the discount, and made the cash payment for interest. Dec. 31 Closed the interest expense account. Required a-1. When the bonds were issued, was the market rate of interest more or less than the stated rate of interest? a-2. If Agatha had sold the bonds at their face amount, what amount of cash would Agatha have received? b. Prepare the liabilities section of the balance sheet at December 31, Year 1 and Year 2. c. Determine the amount of interest expense that will be reported on the income statements for Year 1 and Year 2. d. Determine the amount of interest that will be paid in cash to the bondholders in Year 1 and Year 2.

During Year 1 and Year 2, Agatha Corp. completed the following transactions relating to its bond issue. The corporation’s fiscal year is the calendar year.

Year 1

Jan. 1 Issued $310,000 of 10-year, 6 percent bonds for $298,000. The annual cash payment for interest is due on December 31.

Dec. 31 Recognized interest expense, including the straight-line amortization of the discount, and made the cash payment for interest.

Dec. 31 Closed the interest expense account.

Year 2

Dec. 31 Recognized interest expense, including the straight-line amortization of the discount, and made the cash payment for interest.

Dec. 31 Closed the interest expense account.

Required

a-1. When the bonds were issued, was the market rate of interest more or less than the stated rate of interest?

a-2. If Agatha had sold the bonds at their face amount, what amount of cash would Agatha have received?

b. Prepare the liabilities section of the balance sheet at December 31, Year 1 and Year 2.

c. Determine the amount of interest expense that will be reported on the income statements for Year 1 and Year 2.

d. Determine the amount of interest that will be paid in cash to the bondholders in Year 1 and Year 2.