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Purchasing a Fleet of Used Cars. You are responsible for buying a fleet of 10 used cars for your employees. Which brand of car should you pick?
Groucho Club. Consider a classic quip from Groucho Marx: I won t join any club that is willing to accept. Relate the quip to the adverse-selection problem.
No one can distinguish between lemons and plums. Would you expect the market to be dominated by lemons? Illustrate with a completely labeled graph.
Predict the equilibrium prices of the two types of cars and defend your answer with two graphs, one for each type of car.
Consumer Reports. You want to buy a used car, specifically a 1999 Zephyr. What is the fundamental difference between the two markets?
Which would have prevented the government from spending money on imported goods.
The chapter's discussion of Inflation Bias and Other Problems. How would these considerations affect the exchange rate and output effects of fiscal policy?
Suppose that interest parity does not hold exactly, but that true relationship is R = R*+(Ee - E)/E+?. Evaluate the policy's output effects in this situation.
How would you draw the DD-AA diagram when the current account's response to exchange rate changes follows a J-curve?
The total operating revenue of a public transportation authority are $100 million while its total operating costs are $120 million.
You observe that a country's currency depreciates while its account worsens. What data might you look at to decide whether you are witnessing a J-curve effect?
Determine the point elasticity of demand with respect to advertisement
Would you still expect the tax cut to cause a currency appreciation?
Draw a graph of the relationship between Fines and Revenues [R = f(F)].
Why does a temporary increase in government spending cause the current account to fall by a smaller amount than does permanent increase in government spending?
Suppose there is permanent fall in private aggregate demand for country's output. What is effect on output? What government policy response would you recommend?
Why does the constitutional amendment imply that the government can no longer use fiscal policy to affect employment and output?
Suppose we observe that as a firm decreased its price its total revenue increases, which of the following is a possible value of its price elasticity of demand?
Suppose the government imposes a tariff on all imports. Use the DD-AA model to analyze the effects this measure would have on the economy.
Estimate the (own) price elasticity (of demand). Assume the following:
Why might it be true that relative PPP holds better in the long run than the short run?
How many T-shirts could KRDY-FM sell at $4 each?
In terms of the Fisher effect, what would that pattern say about expected inflation and/or the expected future real interest rate?
Calculate your price elasticity of demand of apples. What can you say about your price elasticity of demand of apples?
What happens to the expected real interest rate? Explain why the subsequent path of the real exchange rate satisfies the real interest parity condition.