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Question: From 1982 through 2000, the S&P 500 stock price index rose an average of 14.7% per year (all figures in this problem are annual averages). Over the same period, the Aaa corporate bond rate fell from 13.8% to 7.6%. Corporate profits adjusted for IVA and CCA grew at an annual rate of 8.5%, compared to a 6.3% average annual gain in GDP.
(A) How much would you have expected the S&P index to rise if there were no changes in the underlying risk factor?
(B) If in fact the risk factor dropped from 6% to 3.5%, how much of the remaining difference could be explained by that factor?
(C) The average P/E ratio for 2000 - as opposed to peak levels - was 27.5. Based on the formulas given in this chapter, how much was that above its equilibrium level?
(D) The P/E ratio subsequently declined to a trough of 16 before the market rebounded. How much of that change do you think was due to (a) decline in corporate earnings, (b) change in the risk factor, (c) overvaluation of the market at its peak, (d) undervaluation of the market at its trough?
Question: Explain why the free rider problem makes it difficult for perfectly competitive markets to provide the Pareto efficient level of a public good.
Some commentators have argued that the failure of the “Super committee” is good thing for the economy? Do you agree?
Case study analysis about optimum resource allocation: - Why might you suspect (even without evidence) that the economy might not be able to produce all the schools and clinics the Ministers want? What constraints are there on an economy's productio..
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Explain the impact of external costs and external benefits on resource allocation; Why are public goods not produced in sufficient quantities by private markets? Which of the following are examples of public goods (or services)? Delete the incorrec..
Describe the differences between shifts in demand and movements along the demand curve. What are the main factors which can shift the demand curve? Explain why they cause the demand curve to shift. Use examples and draw graphs to support your discuss..
Article Review Question: Read the following excerpts from the article "Fruit, veg costs surge' by Todd, Dagwell, published in the Herald on January 25th 2011 and answer questions below:
Long-term Growth, International Trade & Globalization:- This question deals with concepts such as long-term growth, international trade and globalization. Questions related to trade deficit, trade surplus, gains from trade, an international trade sce..
"Does the economic bailout of Spain and Greece spell the beginning of the end for the European Monetary Union (EMU)?"
Read the rules of the game, the overview and the almanac for the Development Game "Settlers of Catan"
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