Advanced macroeconomics question on Leverage banking and Housing bubble. Please answer thoroughly, with good explanations and graphs where appropriate. Correct answers are required please! Thank you.

Advanced macroeconomics question on Leverage banking and Housing bubble. Please answer thoroughly, with good explanations and graphs where appropriate. Correct answers are required please! Thank you.

admin / August 17, 2018

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SHORT ESSAY QUESTIONS Bank Balance Sheet Cash Reserves Loans Investments $500,000 $700,000 $6,800,000 $7,000,000 Deposits Short Term Debt Long-term

Advanced macroeconomics question on Leverage banking and Housing bubble. Please answer thoroughly, with good explanations and graphs where appropriate. Correct answers are required please! Thank you. 

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SHORT ESSAY QUESTIONS
3.
Use
the
above
balance
sheet
to
complete
the
following
questions:
(a) How leveraged is this bank? What danger does that present?
(b) Suppose the bank’s customers want to withdraw $3 million worth of deposits due to ru-
mors of an in-house accounting scandal. Will the bank be able to honor those requests?
(c) What situation is the bank now facing, and what four options could it pursue?
4.
In
2008,
aggregate
demand
fell
due
to
the
housing
bubble
while
aggregate
supply
declined
due to rising commodity prices.
(a)
Assuming
an
initial
medium-run
equilibrium,
show
the
effects
of
these
two
events
in
the AS/AD model. Label the initial medium-run equilibrium as
0
and the new medium-
run equilibrium as
1
. Be sure to state the change in output, unemployment, the price
level, and the inflation rate, or note if these changes are ambiguous.
(b)
Suppose
the
Fed
targets
the
natural
rate
of
unemployment.
What
action
would
it
take?
Show
the
result
of
its
policy
on
your
graph.
Label
the
new
equilibrium
2
.
(c)
Why
might
the
Fed
not
target
the
natural
rate
of
unemployment?
3
Bank Balance Sheet
Cash
$
500
,
000
$
7
,
000
,
000
Reserves
$
700
,
000
$
3
,
000
,
000
Loans
$
6
,
800
,
000
Deposits
Short Term Debt
Long-term Debt
$
3
,
000
,
000
Investments
$
7
,
000
,
000

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