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Taking a bond with no fixed redemption date paying interest. What would be the market price of the bond if the current market rate of interest is 5 per cent?
Can (i) real rate of interest, (ii) nominal rate of interest, ever be negative? Explain. What does it mean to say the demand for money is interest inelastic?
Use your knowledge of the Loanable Funds Theory to explain why a rise in RN below market expectations would cause a change in the demand for.
If the forward rate of exchange is at a discount, what does this tell you about the expected future spot rate?
When exchange rates are fixed, is the purchasing power parity theory irrelevant? Distinguish between depreciation and devaluation.
There is a sharp increase in the price of oil on world markets. To what extent can the SDR be regarded as money?
Summaries the arguments for and against the proposition that progressive taxes have dis-incentive effects. What is the poverty trap?
The UK tax system discriminates heavily against earned income but leave wealth relatively untouched. Why is this? How is the PSBR related to the Budget deficit?
Why is the short-run demand curve for labor downward sloping? What mix of inputs should be used to produce a given level of output?
Show that in the long run the firm will hire fewer workers. What factors determine the elasticity of the industry's labor demand curve?
What is the capital-skill complementarity hypothesis? Show how the minimum wage creates unemployment in a competitive market.
Which input combination should the firm then use? What is the elasticity of labor demand as the wage falls from $300 to $225?
What happens to the long-run demand curve for labor if the price of capital increases? Decompose the changes into scale and substitution effects.
In which direction will the scale effect change the firm's employment and capital stock? Can we say conclusively whether the firm will use more or less labor?
What is the impact of the minimum wage on employment? Does it matter which of the two curves (supply or demand) is "more" downward sloping? Why?
The firm's elasticity of demand for labor is -0.5. The firm sells its output at $20 per unit. What will happen to the number of workers hired by the firm?
How many workers would lose their jobs? How many additional workers would want a job at the minimum wage? What is the unemployment rate?
Describe how the worker decides whether to accept a safe job (where she cannot be injured) or a risky job (where she will certainly be injured).
How is the market compensating wage differential between safe jobs and risky jobs determined? What does the slope of the hedonic wage function measure?
Finally, explain why all else equal, the president is not responsible for causing greater poverty.
Is it possible for two countries to have the same Gini coefficient but different distributions of income? Explain how you came to your conclusion.
What measure of the income distribution does the first statistic tell you about? What about the second?
Classify this provision into one of the approaches to alleviating poverty discussed in the chapter and explain your reasoning.
If unconditional cash transfers have the same effect as conditional cash transfers, which one allows the government to alleviate poverty more effectively?
Drawing on the trade-off between equity and efficiency, explain whether Rawls would favor redistribution that limits growth but creates equality.