Saturday, December 15, 2018
'Assignment: Economics Essay\r'
'1. Economists in Funlandia, a closed economy, have hoard the following data about the economy for a lineamenticular year:\r\nEconomists also estimate that the investiture function is: where r is the countryÃ¢â¬â¢s historical by-line rate, expressed as a percentage. aspire private saving, public saving, national saving, investment, and the equilibrium touch rate. Please none: national savings is not related to the post rate, which means that the egress yield for loanable funds is vertical. (15 points)\r\nPrivate obstetrical deliverys= Y-T-C 10000-1500-6000= 2500\r\nPublic Saving= T-G 1500-1700= -200\r\nNational Saving= S=(Y-T-C)+(T-G)=(10000-1500-6000)+(1500-1700)= 2300 Investing= I=Y-C-G 10000-6000-1700= 2300\r\nReal relate rate\r\nI = 3,300-100r , 100r = 3,300-I\r\n100r = 3,300-2300 ( I=2300)\r\n100r = 1000\r\n100r/100 = 1000/100 (dividing it by 100)\r\nr = 10\r\n2. In the summer of 2010, coition passed a far-r for each oneing pecuniary reform to prevent some oth er financial crisis like the one experienced in 2008-2009. Consider the following possibilities: a. Suppose that, by requiring firms to obey with strict regulations, the bill increases the costs of investment. On a well-labeled graph, show the consequences of the bill on the market for loanable funds. Be sure to specify changes in the equilibrium intimacy rate and the level of saving and investment. What are the set up of the bill on long-run economic return (rec all in all: higher investment would increase bully and capital per worker)? (7 points) i. The demand loanable would decline along with the equilibrium. The saving and investments ordain decline as well\r\nhence plentiful the economy a lower rate for the future. ii.\r\nb. Suppose, on the other hand, that by effectively regulating the financial system, the bill increases saversÃ¢â¬â¢ confidence in the financial system. build the consequences of the policy in this situation on a new graph, again noting changes in the equilibrium spare-time activity rate and the level of saving and investment. Again approximate the effects on long run growth. (7 points) i. The supply of loanable funds would increase. The interest rate will falling off while the savings and investments will increase. Which will let the economy growth for the future, ii.\r\nProblems for Chapter 14\r\n3. According to an anile myth, Native Americans sold the island of Manhattan 400 years agone for $24. If they had access to a financial investment that yielded an interest rate of 7% per year, how much would they have today? (8 points) a. (1.07)^400 x 24= $13.6 Trillion\r\n4. For each of the following kinds of insurance, give an spokesperson of a mien that can be called object lesson hazard and another(prenominal) example of behavior that can be called indecorous selection: a. Medical insurance (6 points)\r\ni. A barf person is more belike to apply to medical exam insurance compared to a healthy person. Meaning itÃ¢â¬â¢s an adverse selection. A healthy person whitethorn get health insurance too scarcely now he may less likely to take care of himself, this would be a moral hazard. b. Car insurance (6 points)\r\ni. A risky number one wood is more likely to apply for car insurance, this would be an adverse selection. Or once a number one wood has insurance, they may be driving more reckless, this would be a moral hazrd.\r\n5. For each of the following pairs of stays, which fastening would you expect to pay a higher interest rate? Explain. (5 points each) a. A bond of the US regimen or a bond of an Eastern European government i. Eastern European because non-US bonds will acknowledge risk premiums and also have higher interest rates b. A bond that repays the principal in 2015 or a bond that repays the principal in 2040 i. 2040 because higher maturity requires higher interest rate. c. A bond from Coca-Cola or a bond from a software companionship that run in your garage i. The software company du e to not existence well known so it would be a higher interest rate. d. A bond issued by the federal government or a bond issued by the state of New York i. Definitely federal government because they are not tax-exempted compared to municipal bonds\r\n6. When company executives buy and sell stock ground on private information they obtain as part of their jobs, they are engaged in insider traffic. a. Give an example of inside information that might be helpful for buying or selling stock. (6 points) i. Information on new products or any government participation that may affect the firm b. Those who trade stocks based on inside information usually absorb very high rates of return.\r\nDoes this fact infract the efficient markets hypothesis? (6 points) i. Who does trade with inside information is not violating the efficient market hypothesis. The hypothesis includes all available information about the future of the firm. within information is not available to the public signifi cance the price of the stock doesnÃ¢â¬â¢t reflect this. c. Insider trading is sinful. Why do you suppose that is? (5 points) i. ItÃ¢â¬â¢s illegal for sure due to the fact that it gives others an unfair expediency over everyone else who doesnÃ¢â¬â¢t have access to this.\r\n7. Jamal has a utility function , where W is his wealth in millions of dollars and U is the utility that he obtains. a. Graph JamalÃ¢â¬â¢s utility function. Is he risk averse? Explain. (7 points) i.\r\n1. He is risk averse because of his chances of getting more bills for more risk. b. In the final stage of a game show, the host offers Jamal a select surrounded by: i. $4 million for sure\r\nii. A run a risk that pays $1 million with 60% probability and $9 million with 40% probability Should Jamal calve choice i or choice ii? collar: evaluate the utility that Jamal would expect to go through in choice i and choice ii. Jamal would expect to receive utility in the amount of the weighted reasonable of the possible outcomes, where the probabilities are the weights. (7 points)\r\nE(Utility) = 0.6*U(1000000) + 0.4*U(9000000) = 0.6*0 + 0.4*1 = 0.4\r\nJamel should pick option one because he has a and 40% in order to get the 9 million but it might not worth it because he could end up back at 1 million.\r\n'