Homework 9 Principles of Economics Name________________________________ Date___________________________________ Present your homework to Tomislav Herceg before Midterm 2. It is necessary to consign all your homeworks in order to be able to take the midterms and the final. Homework is an individual task for every student. Its intention is to provoke continuous work in order to reach better comprehension. Hence it is futile, immoral and illegal to GIVE YOUR HOMEWORK TO OTHER STUDENTS and to COPY HOMEWORKS AND PRESENT IT AS YOURS. Every misconduct in this sense will be considered as a violation of academic ethics AND WILL BE PROSECUTED. 1. There are 4 main instruments of the central bank. Write to which instrument the following measures belong to and comment whether it is expansive or restrictive monetary policy: a) b) c) d) e) Central bank buys 10 Mill. HRK of Croatian national bonds. Reserve requirement is increased from 12% to 18%. Central bank buys 1 Bill. EUR Discount rate is decreased from 7% to 5 ½ % Central bank buys 300 Mill. USD 2. Show graphically the effect of restrictive monetary policy on investment and aggregate demand (5 graphs slide in presentation) 3. Calculate loan and money supply multipliers for problem 1 b). Calculate the chnage in money supply caused by measures 1 a) and c) before and after the change of reserve requirement (let 1EUR = 7,60 HRK). 4. This is the exchange rate DIN/EUR graph. What kind of exchange rate is it (fixed, fluctuating, managed fluctuating? 1999. 2000. 2001. 2002. 2003. 2004. 2005. 2006. 2007. 2008. 2009. 2010. 2011. 2012. 2013. 140.0000 120.0000 100.0000 80.0000 60.0000 40.0000 20.0000 0.0000 5. Potential output growth is 4%. Current output growth is -1%. Current unemployment rate is 20%. Find natural unemployment rate if Okun's law in the USA holds. 6. What would you do with Croatian economy? (deflation, GDP fall, high unemployment)?