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Now, back to the balance sheet at the beginning. Suppose the Lender of Last Resort, aka, the central bank, offers a borrowing limit of $100 in case of a liquidity shortage; what is the maximum withdrawal of deposits the bank can handle before it becomes insolvent? (Put the number in the answer box without the dollar sign.)

Calculate the equity multiplier, the leverage ratio, and the liquidity ratio

I understand that I must stay within view of my camera while testing

Suppose the representative household knows the government’s intertemporal budget constraint must hold. Combine this information with the household’s consumption function that you derived above. Is consumption still a function of taxes?

Aggregate expenditure is . Plug in your expression for the consumption function (assuming the household knows the government’s intertemporal budget constraint must hold) to derive an expression for .

Consumption-Savings Decisions Consider a consumer with a lifetime utility function

Combine the two budget constraints into a single lifetime budget constraint.

Endowment Equilibrium and Fiscal Policy Suppose that we have an economy with many identical households. There is a government that exogenously consumes some output ( and ) and pays for it with lump-sum taxes ( and ) or debt (). Lifetime utility for a household is:

What are the significant implications of Rational Expectations? Name at least one.

Graphically depict the optimality condition. Carefully label the intercepts of the budget constraint. What is the slope of the indifference curve at the optimal consumption basket,