Suppose the commercial banks keep no excess reserves, and people deposit all the money they receive into the banking system. Suppose the required reserve ratio is 0.2. Suppose the Federal Reserve wants to increase the monetary base by $1,000,000.
(a) How will the Fed do this?
(b) Show how this will initially affect the balance sheet of Bank of America.
(c) Show how the money expansion process will affect the balance sheets of two more commercial banks, showing the change in the overall money supply at each step.
(d) How much did money supply change as a result of the Fed's actions?

Suppose that a major city’s main thoroughfare, which is also an interstate highway, will be completely closed to traffic for two years, from january 2014 to december 2015, for reconstruction at a cost of $535 million. if the construction company were to keep the highway open for traffic during construction, the highway reconstruction project would take much longer and be more expensive. suppose that construction would take four years if the highway were kept open, at a total cost of $800 million. the state department of transportation had to make its decision in 2014, one year before the start of construction (so that the first payment was one year away). so the department of transportation had the following choices: (i) close the highway during construction, at an annual cost of $267.5 million per year for two years. (ii) keep the highway open during construction, at an annual cost of $200 million per year for four years. now suppose the interest rate is 80%. calculate the present value of the costs incurred under each plan.

2. a computer equipment was acquired at the beginning of the year at a cost of $56,000 with an estimated residual value of $5,000, and an estimated useful life of five years. determine the second year’s depreciation expense using the straight-line method.

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