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Suppose that the economy is hit by the following shock: Financial turmoil leads to an increase in risk aversion by wealth holders in the sense that they want to hold more of their wealth in insured bank deposits (money) and less in bonds and stocks. a. With the help of an AD-AS diagram, explain the effect on the price level and real GDP. Use an upward sloping AS curve and be clear about the interconnections among markets.
b. Explain all of the effects that this shock will have on the (nominal) interest rate, i. No graph is required for this answer.
c. Explain what the Fed should do if it wants to use open market operations to offset the effect of this shock.
What are the advantages of Fed increasing interest rates if the GDP gap is positive?
Compute total revenue, marginal revenue, total cost and profit at each quantity. What quantity would a profit-maximizing publisher choose? What price would it charge?
Explain why user cost, or scarcity rent, arises in the intertemporal allocation of a depletable resource such as minerals, and some types of energy and aquifer water resources.
Perfect competition guarantees allocative efficiency. A profit-maximizing monopolist can never be allocatively efficient.
Write down the effect on the real wage and hours worked in the short run.
Select any low income country (or countries) on which you can find data on the following (a web search should yield you the required information)
Suppose that yi receives $ 60 per day as interest on inheritance and her wage is $25 per hour, and she can work a maximum of 16 hours per day at her job. draw her daily budget constraint.
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
Comment on the effect of a recession on the investment curve (only) and on the level of savings, investment, and the equilibrium real interest rate in the financial crisis that hits United States first starting in fall 2007.
What are primarily intended to address the problem of insuring people who do not have health insurance? Would a public national health insurance system reduce total spending on health care in our economy?
Your company is considering expanding overseas. It is particulary interested in developing markets, and narrowed its choice down to two countries, A and B.
Let the market demand for rye bread be given by Q = 500 + I - 250P rye + 400P wheat , where Q is monthly demand in number of loaves, I is average monthly income in dollars
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