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Use of discretionary policy to stabilize the economy
Should policymakers use monetary policy, fiscal policy, or both in an effort to stabilize the economy? The following questions address the issue of how monetary and fiscal policies affect the economy and the pros and cons of using these tools to lessen economic fluctuations.
The following graph shows a hypothetical aggregate demand curve (AD), short-run aggregate supply curve (AS), and long-run aggregate supply curve (LRAS) for the economy in February 2020. According to the graph, this economy is in________________________ . To bring the economy back to the natural rate of output, the government could use ___________________ monetary policy such as______________________.
Suppose that in February 2020, policymakers undertake the type of policy that is necessary to bring the economy back to the natural rate of output, given the scenario just described. In April 2020, imports decrease, because the United States has implemented trade restrictions on Japanese goods. Because of the______________________ associated with implementing monetary and fiscal policy, the impact of the policymakers' stabilization policy will likely________________________________ once the effects of the policy are fully realized.
The Abby Company has just purchased $30,000,000 of plant and equipment that has an estimated useful life of 15 years. Suppose at the end of 15 years this plant and equipment can be salvaged for $3,000,000 (1/10th of its original cost). What will be t..
There are two mutually exclusive proposals for a for a flood control project in Illinois. The first proposal involves an initial outlay of $1,350,000 and annual expenses of $110,000. This plan is assumed to be permanent.
RightPrice Investors, Inc., is considering the purchase of a $372,000 computer with an economic life of four years. The computer will be fully depreciated over four years using the straight-line method. The market value of the computer will be $72,00..
Which of the following statements is true of amortization?
Allie forms Broadbill Corporation by transferring land (basis of $125,000, fair market value of $775,000), which is subject to a mortgage of $375,000. One month prior to incorporating Broadbill, Allie borrows $100,000 for personal reasons and gives t..
Your company will generate $60,000 in annual revenue each year for the next seven years from a new information database. If the appropriate interest rate is 8.50 percent, what is the present value of the savings?
You develop the following information. Your firm has a target capital structure of 80% common equity, 5% preferred stock and 15% debt. The firm’s tax rate is 25%. The firm can issue up to $225,000 worth of debt at a before-tax cost of 10%. Then it wi..
Solve each situation separately, where P = principal; r = interest rate; t = time in years; I = interest and future value FV = You want to start a bakery business. For this, you will need a capital of $ 75,000 to start operating. If you have to opera..
Evaluate the potential gains and losses for forwards, futures, call options, put options, and swaps. Outline and describe the different risks that each type of derivative contract faces. Describe different methods of valuing derivatives. Assess the s..
Which type of insurance company generally takes on the greater risks: a life insurance company or a property and casualty insurance company?
Digital Organics has 11.1 million outstanding shares trading at $36 per share. It also has a large amount of debt outstanding, all coming due in one year. The debt pays interest at 9%. It has a par (face) value of $339 million, but is trading at a ma..
(a) In your own words, from the point-of-view of a common shareholder, how would you estimate a company’s fundamental or intrinsic value? (b) What are some of the reasons why a company’s fundamental value might significantly exceed its “book value”?
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