Question

1. Explain how an increase in national income in Canada and Mexico, causing them to invest more into the United States impacts the loanable funds market, what happens to the interest rate in the US and why? What happens to US GDP and why?  
2. Does foreign investment impact the loanable funds market in the same way that baby boomer's retiring will? Why or why not? Is foreign investment a good or bad thing for the US?
3. Explain how having positive time preferences impacts people's ability to save for the future.
4. Graph the Loanable funds market and show 2 events that occur that can cause the interest rate to go up (be sure to label all parts of your graph)
5. Explain why the price of a $1,000 bond changes and give an example of how you would calculate the interest rate on it if the bond is selling for $600 in the secondary market.
6. Using your example above, create a table showing what happens to the interest rate when the price is $200 lower & $200 higher. Make note of the relationship between these two as it will be on the exam.
7. On page 740 the book explains the Dow Jones Index & S&P 500 based on the way they are computed which do you think is more reliable and why?
8. Explain the role of Treasury Securities in US debt; who owns the majority of US debt?
9. Explain why when Bob transfers $300 from his savings account to his checking account M2 does not change.

10. Currently Bank B is under poor management and is not "loaned up"; The current reserves includes required reserves and any excess or negative excess amounts and it is holding onto cash.  

Assets		Liabilities
Current Reserves	60,000	Deposits	300,000
Loans	120,000	OE	20,000
Cash	90,000
Treasury Securities	50,000

The Federal Reserve changes the RRR from 7.5% to 5% and purchases 40% of this banks Treasury Securities.

1. How much money can this bank make in total loans after these two changes if it wants to be considered "loaned up"?
2. Does the sale to the Federal Reserve increase or decrease this banks reserve account? and why? (this will be on the exam)
3. After these two changes and a mandate from the CEO of all banks to be "loaned up" what is the maximum amount the entire banking system can grow?

Answer 1

As per HOMEWORKLIB RULES in case of multiple questions only the first question is to be answered

Kindly ask rest of the questions in a separate post

1.

An increase in national income of Canada and Mexico, causing them to invest more in US will increase the supply of loanable funds in the US loanable market.

As a result of this, interest rate in US market falls and quantity of loans given out increases.

As loans given out increases and interest rates fall, investment in the economy increases. Since GDP is made up of consumption, investment and government expenditure, an increase in Investment will thus increase GDP in USA.

Hence, one can see, how Increase in national income of Canada and Mexico will end up increasing GDP of USA.