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From 2002 through 2005, residential investment boomed in the United states, as financial innovations seemingly made it possible to better match borrowers and lenders. (It subsequently became apparent that many of the loans made towards the end of this period were based on unduly optimistic assumptions about the productivity of the underlying investments.)
a. Consider a market-clearing economy in which output (Y1)depends only on the capital stock (k1) and an exogenous productivity variable (θ1) according to the production function y1 = θ2f(k2). Use a two quadrant diagram with the capital stock, ko on the horizontal axes and consumption, Co on one vertical axis and the real interest rate ro on the other -to depict the steady state equilibrium of the economy. Label the various curves plotted in your diagram.
b. Suddenly, current and expected future values pof I are believed to have interested. How does the Steady state to u depicted in 2(a) shift? How does the economy get from the original steady state to the new steady state? (That is, how do consumption, output and the capital stock. And the real interest rate move, over time, in response to the new information?) What happens to the total value of the stock market as the economy moves from the original steady state to the new steady state?
Describe the present economic crisis situation in Europe. Why has it been so difficult for the Europeans to find a solution to this problem? Comment on what implications the crisis may have for the rest of the world if Europeans are not able to ag..
Suppose two identical firms produce widgets and they are the only firms in the market. Find the Cournot-Nash equilibrium.
The rising stock market implies an increase in wealth, at least as measured on paper. If we assume that some of this increased wealth gets consumed, then the rising stock market fuels an increase in aggregate demand, and may contribute to an inflatio..
Explain why you would be more or less willing to buy a share of Apple Computers stock in the following situations:
Global Widgets Corp is a manufacturing company that builds standardized galvanized metal benches for sports arenas and stadiums-Do you think one of these firms would be more likely to benefit from a de-centralized decision making organizational arc..
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 is Bill's opportunity cost of producing one hat, In which of the two activities does Mary have a comparative advantage.
"A substantial number of relatively unskilled persons reported that they can't find work. At the same time, there're many unfilled jobs for relatively skilled people. Apparently, the problem is that there're more unskilled peop..
Suppose the demand curve for a product is given by Q = 300-2P+4I where 'I' is average income measured in thousands of dollars. The supply curve is Q = 3P - 50.
Karen earns $75,000 in the current period and will earn $75,000 in the future. Assuming that these are the only two periods, and that banks in her country borrow and lend at an interest rate r = 0, draw her inter-temporal budget constraint.
Would you rather earn a 4 % nomical or 4% real interest rate? Illustrate by describing the difference between nominal and real variables.
The airline has an average of 40 passengers paying an average of $200 for this flight. Do you think the airline should be flying between the two cities? Evaluate from a short-run and long-run perspective.
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