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.