c. Explain the relationship between AC and MC.______________

Problem 1Suppose that the monetary base in an economy is $100 billion and currency drain ratio is 5%. People deposit 80% of currency in saving deposit with the required reserve ratio R1=10% and deposit the rest of currency in time deposit with R2=5%. Money is created through the process of deposit and loan in the banking system.  Explain the process of money creation. _________Calculate the money supply M = ________ of this banking system.Calculate the monetary multiplier M/B = ________ of this banking system.

Problem 2. An economy is operating with output $408 billion below its natural rate, and fiscal policymakers want to close this recessionary gap. The central bank agrees to adjust the money supply to hold the interest rate constant, so there is no crowding out. The marginal propensity to consume is 0.9, the marginal propensity to import is 0.1, and the tax rate is 0.05. The price level is completely fixed in the short run. In what direction and by how much would government spending need to change to close the recessionary gap? _____________ Explain your thinking in the AE graph and in words._____________ 

a. Write down and draw total cost (TC), total fixed cost (TFC), and total variable cost (TVC).______________

b. Write down and draw average cost (AC), average fixed cost (AFC), average variable cost (AVC), and marginal cost (MC).______________

a. What is monopoly supply curve?

b. What are monopoly output and price? QM = ______ and PM = ______

c. What is monopoly profit? πM = ______

d. Is this market efficient? Explain why?_________

a. Calculate the uncompensated (Marshallian) demand functions for X = ______ and Y = ______

b. Compute the indirect utility function ______ and the expenditure function ______ for this case.

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