ECON 1250 SUMMER 2016 ASSIGNMENT 2

ECON 1250 SUMMER 2016 ASSIGNMENT 2
TOTAL MARKS = 30
1. One theory of Long Run Economic Growth is referred to as the Theory of Investment, Saving, and Growth. If
the Marginal Propensity to Save, MPS = 0.15, the current level of Autonomous Household Expenditure, c 0 =
$15.0 billion, the Government Tax rate, ? = 0.30, the current level of GDP, Y = $1,250.0 billion, and the current
Government Expenditure, G0 = $250.0 billion, determine the value of Household Private Saving, S,
Government Public Saving, and total National Saving, NS. (3 Marks)
2. Explain briefly how a Government Budget Balance deficit can result in a reduction of future Economic
Growth. (2 Marks)
3. Money is sometimes described by economists as “a Veil that obscures the underlying transaction.” Briefly
explain the intended meaning of this phrase? (3 Marks)
4. Briefly describe each of the “Core Functions” of the Bank of Canada. (8 Marks)
5. Canada’s commercial banking system follows a “Fractional Reserve” system: (1) Briefly explain what a
“Fractional Reserve” system is; and (2) What the change in the Money Supply, M S would be if the Reserve
Requirement, v is 10 percent and the Cash Drain, c is 30 percent? (4 Marks)
6. Briefly describe the difference between a “Demand Account” and a “Notice Account” deposit at a
commercial bank? (4 Marks)
7. The three determinants of Money Demand, M D are said to be the rate of Interest, real GDP, and the Price
Level. Briefly explain how and why each of these determinants impacts the economy’s total money demand.
(6 Marks)