# Using T-accounts show what happens to reserves at Security National Bank if one individual…

Using T-accounts show what happens to reserves at Security National Bank if one individual deposits 00 in cash into her checking account and another individual withdraws \$750 in cash from her checking account.

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Your bank has the following balance sheet:

Assets Liabilities

Reserves \$ 50 million Checkable deposits \$200 million

Securities 50 million

Loans 150 million Bank capital 50 million

If the required reserve ratio is 10%, what actions should the bank manager take if there is an unexpected deposit outflow of \$50 million?

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EC 320 Summer 2011 Assignment 4 Chapter 14 Questions: 1. You have a society with 2 people, where one is rich and the other poor. They have, though, identical utility functions. These exhibit diminishing marginal utility. In this society, taxes are set such that the total amount of utility that each person loses (from the tax) is the same. Explain whether or not this system would be progressive. 2. For product X, average cost is equal to marginal cost at all levels of output. Assuming that X is sold in a competitive environment, and that consumer demand for the product is linear, analyze the effects of a unit tax of u dollars if it is imposed (assume no prior tax). What if the market for X is characterized by monopoly? What is the impact of the tax? Is there a difference in the impact of a unit tax in competitive versus monopoly markets? 3. My city wants to reduce alcohol consumption and is considering a \$1.00 tax on a gallon of liquor sold. The tax would be levied on producers. We believe supply and demand in this market is modeled as follows: Qd= 500,000-20,000P and Qs = 30,000P, where P = price. A) Compute how the tax affects the price paid by consumers and the price received by suppliers after the \$1.00 tax is imposed. B) What is the revenue the government receives from the tax? How much of the revenue comes from consumers, and how much from producers. C) We think that the elasticity of demand isn’t constant across ages, that young people face a more elastic demand curve. How do you think the tax will effect young people? 4. A country has a tax system that uses a flat rate tax of 6% of income, but no taxes are levied on any income greater than \$60,000. Everyone gets a \$10,000 deduction and pays taxes on the balance of income. Find marginal and average tax rates for these three different workers in this country: A) a part time worker who makes \$8,500. B) a salesperson earning \$52,000. C) a Wall Street Equivalent investor type who earns \$700,000. Finally, describe…

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