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Assume that a less developed country called LDC encourages direct foreign investment (DFI) in order to reduce its unemployment rate, currently at 15 percent. Also assume that several MNCs are likely to consider DFI in this country. The inflation rate in recent years has averaged 4 percent. The hourly wage in LDC for manufacturing work is the equivalent of about $5 per hour. When Piedmont Co. develops cash flow forecasts to perform a capital budgeting analysis for a project in LDC, it assumes a wage rate of $5 in Year 1 and applies a 4 percent increase for each of the next 10 years. The components produced are to be exported to Piedmont's headquarters in the United States, where they will be used in the production of computers. Do you think Piedmont will overestimate or underestimate the net present value of this project? Why?
Compute the point price elasticity of demand for bearing grease. Compute the optional price for bearing grease if marginal cost is $4.50 per unit.
In which of the following circumstances is expansionary fiscal policy more likely to lead to a short-run increase in investment? Explain?
What is likely to happen to the number of gliders sold if Emerson follows company policy and raises the glider price to that calculated in part b?
Illustrate the difference among dollarization, a currency board, and a fixed exchange rate regime. Do you know of any countries that have recently adopted dollarization.
Use our discussion of price discrimination to justify this argument. What problems do you envisage in implementing the policy?
Problem - Income Elasticity of Demand, Interpret the following Income Elasticities of Demand (YED) values for the following and state if the good is normal or inferior; YED= +0.5 and YED= -2.5
Explain the advantages and disadvantages of using a change in the tax rate to achieve the desired increase in output.
At the end of 2002, the (1-year) interest rate was 1% in the U.S., and 26% in Argentina. Recall that at the same time, the spot rate for the Argentine currency was Peso 4.00/$.
In other situations it would be reasonable for a purely competitive wheat farmer to raise his price per bushel because he could reduce his variable costs by selling less at a higher price. True or false, and why?
Suppose that the economy is short of its full-employment (potential) level of GDP, assumed to be $14,000 billion, by $500 billion.
Compute the own price elasticity of demand at a price of $4. What is the inverse demand curve for the radio station
What is value added in every sector also what is total output for the economy.
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