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Consider a two period model with credit market imperfections. More specifically, lenders face a pool of borrowers with different risk factors. For simplicity, suppose that fraction a of borrowers is risky and they never pay their debt back. Fraction 1-a of the borrowers is risk-free and they pay back their debt. However, the lenders cannot distinguish between the risky and risk-free borrowers. Therefore, they charge the same interest rate to both type of borrowers. Given that the lending rate is r1, using the zero-profit condition for the lenders, compute the borrowing rate, r2, as a function of the lending rate r1 and the fraction of risky borrowers, a. What happens to the borrowing rate r2 if the fraction of risky borrowers, a, increases? Explain. Determine the effect of an increase in the fraction of risky borrowers on equilibrium prices (real interest rate (lending rate) and wages) and quantities (output, consumption, employment and investment) within the context of a two-period real intertemporal model with credit market imperfections.
When prices are (P1, P2)= (1,2), the consumer demands (X1, X2) = (1,2). When prices are (Q1, Q2) = (2,1), the consumer demands (Y1, Y2) = (2,1). Is this consumer behaviour consistent with Weak Axiom of revealed preference ? Prove that elasticity of d..
If taxes increase by $500 and the MPC is 0.8, what is the change in consumption and private savings? What is the change in public savings? what is the change in total savings? What is the change in investment?
In each case use a diagram in your notes to determine the expected effects on the equilibrium price level (P) and level of real output (Q). For each of the economic structures described in a-j, give the effects on P and Q. (ie + or -). (Assume th..
Discuss problems of measuring productivity in actual work situations. How might productivity be measured for each of the following industries?
Mary wants to buy a house but does not want to get a loan. Her dream house has an average price of $500,000 and its price is growing at 5 percent per year. How much should Mary invest in a project at the end of each year for the next 5 years in order..
Median length of stay was 1.1 days shorter when a hospitalist cared for a Medicare patient. Median cost per case was $853 less (excluding physician fees). There were no significant differences in mortality, 30-day readmissions, or transfers.
You are the manager of a monopoly that sells a product to two groups of consumers in different parts of the country. Group 1’s elasticity of demand is -3, while group 2’s is -4. Your marginal cost of producing the product is $20. Determine your optim..
If a product becomes more popular among buyers, then its supply will decrease and its price will rise as shoppers buy more of it from the sellers. If the government grants a subsidy to homebuilders, then the supply of lumber will increase because lum..
Is GDP a Good Measure of Economic Well-Being? If GDP is a good measure of well-being, why is Switzerland’s GDP so much lower than India’s GDP or China’s GDP? What measures would be better to compare the well-being of different countries? How do you e..
1. Suppose that Congress increases the minimum wage to $12 an hour, and it is binding. a. Use a supply and demand model for low-skill labor to show the effect on the number of unskilled workers employed.
Economics 350K: Energy Economics Spring 2016. Determine both firms' reaction functions. Draw a diagram showing the reaction functions for the two terms as well as the profit maximizing output level for both firms
Select a foreign country and analyze its monetary system. Research the country’s monetary system using at least five scholarly sources, including a minimum of three from the Ashford Online Library. Your analysis should be an eight to ten page paper f..
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