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From 2002 through 2005, residential investment boomed in the United states, as financial innovations seemingly made it possible to better match borrowers and lenders. (It subsequently became apparent that many of the loans made towards the end of this period were based on unduly optimistic assumptions about the productivity of the underlying investments.)
a. Consider a market-clearing economy in which output (Y1)depends only on the capital stock (k1) and an exogenous productivity variable (θ1) according to the production function y1 = θ2f(k2). Use a two quadrant diagram with the capital stock, ko on the horizontal axes and consumption, Co on one vertical axis and the real interest rate ro on the other -to depict the steady state equilibrium of the economy. Label the various curves plotted in your diagram.
b. Suddenly, current and expected future values pof I are believed to have interested. How does the Steady state to u depicted in 2(a) shift? How does the economy get from the original steady state to the new steady state? (That is, how do consumption, output and the capital stock. And the real interest rate move, over time, in response to the new information?) What happens to the total value of the stock market as the economy moves from the original steady state to the new steady state?
Exchange and markets, Demand supply and market equilibrium
Assess the degree of difficulty associated with measuring marginal revenue product for each of the following occupations.
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Your company is considering expanding overseas. It is particulary interested in developing markets, and narrowed its choice down to two countries, A and B.
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Suppose that in response to learning that some sick individuals were denied health insurance, the government mandates that insurance companies must offer insurance to everyone at unregulated rates.
Suppose that the assumption in key concept are satisfied. Show that X i is a valid instrument. That is, show that key concept 12.3 is satisfied with Z i = X i .
The following is a list of figures for a given year in billions of dollars. Calculate the GDP and NI.
Explain why a monopolist will never set a price (and produce the corresponding output) at which the demand is price-inelastic.
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