P6. A country’s gross domestic product (GDP) is $20 billion, and its
money supply (MS) is $5 billion. Answer the following questions:
a. What is the country’s velocity of money (VM)? 
b. If the money supply stays at the same level next year while the
VM “turns over” 4.5 times, what will the GDP level be?
c. Assume that the VM will turn over 4 times next year. If the
country wants a GDP of $22 billion at the end of next year,
what will have to be the size of the money supply? What
percentage increase in the money supply will be necessary to
achieve the target GDP?
P7. 7. Assume that the real output (RO) for a country is expected to be
2.4 million products. Answer the following questions:
a. If the price level (PL) is $250 per product, what will be the
amount of the gross domestic product (GDP)?
b. Now assume that the GDP is projected to be $8 million next
year. What will the PL of the products need to be to reach the
GDP target? c. Now assume that the RO of 2.4 million products is composed
of equal amounts of two types of products. The fi rst product
sells for $100 each, and the second product sells for $500 each.
What will be the size of the GDP?
P8. 8. Assume that a country estimates its M1 money supply at $20
million. A broader measure of the money supply, M2, is $50 million.
The country’s gross domestic product is $100 million. Production or
real output for the country is 500,000 units or products.
a. Determine the velocity of money based on the M1 money
supply.
b. Determine the velocity of money based on the M2 money
supply.
c. Determine the average price for the real output.
Chapt3
P2. 2. Assume that you can borrow $175,000 for one year from a local
commercial bank.
a. The bank loan offi cer offers you the loan if you agree to pay
$16,000 in interest plus repay the $175,000 at the end of one
year. What is the percent interest rate or effective cost?
b. As an alternative you could get a one-year, $175,000 discount
loan at 9 percent interest. What is the percent interest rate or
effective cost?
c. Which one of the two loans would you prefer?
d. At what discount loan interest rate would you be indifferent
between the two loans?
P3. 3. ABE Banc has the following asset categories:
Cash $1 million
Securities $4 million
Loans ?
Other assets $2 million
Total assets ?
a. What would be the bank’s total assets if loans were twice the
size of the amount of securities?
b. If total assets were $12 million, what would be the amount of
the loans?
c. If total assets were $11 million and $1 million of securities
were sold with the proceeds placed in the cash account, what
would be the amount of the loans?
P4. 4. ATM Banc has the following liabilities and equity categories:
Deposits $9 million
Other liabilities $4 million
Owners’ capital ?
Total liabilities and capital ?
a. What would be the bank’s total liabilities and capital if
owners’ capital were half the size of other liabilities? b. If total liabilities and capital were $15.5 million, what wouldbe the amount of the owners’ capital? c. If total liabilities and capital were $14 million and $1 millionof deposits were withdrawn from the bank, what would be theamount of the owners’ capital?
P6. 6. A bank’s assets consist of the following:
Cash $1.5 million
Loans $10 million
Securities $4.5 million
Fixed assets $2 million
In addition, the bank’s owners’ capital is $1.5 million.
a. Calculate the equity capital ratio.
b. If $2 million in bad loans were removed from the bank’s
assets, show how the equity capital ratio would change.
P9.