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Question
The following question will examine what happens in the money market when the interest rate approaches zero.
a) Which interest rate represents the opportunity cost of holding money - the real or the nominal interest rate? Explain.
b) Argue intuitively why the nominal interest rate (eg, the yield on a riskless bond) cannot fall below zero.
c) Can the real interest rate fall below zero? Explain.
d) Modify Figure 28-2 in the textbook to take into account this "zero lower bound" for the nominal interest rate. You need to show graphically the slope of the MD curve as the nominal interest rate approaches 0. Explain the shape of the MD curve.
e) Using your graph in part (d), explain what happens following a monetary expansion when the nominal interest rate is already close to 0.
Discuss an adjustment process using AD and AS analysis that will ensure that the economy will return to full employment.
I am planning giving a patent for a new drug. The public demand is given through: P=120-10Q, where Q is quantity of the drug and P is price. If the marginal cost of production is given by MC = 2Q,
Which of the following situation descriptive a perfectly competitive market. Graph marginal costs from table below and answer the following questions:
Assume that the following information about the economy is correct. The potential GDP is 3 percent. Real GDP has fallen at a minus two percent rate in the last 12 months.
If it will cost us approximately $0.75/bottle to supply more Coke to our consumer what should we do if our goal is to maximize profit.
Explain why cannot nations like Greece or Spain use quantitative easing as a means to stimulate their economies.
Determine the present state of the economy and trade relationship between your country and the US?
The Joe firm is experiencing financial problems. Its dividends and earnings are falling at a constant rate of 7 percent per year. It's stock just paid a yearly common stock dividend of $1.50 per share;
An industry consists of three firms with identical costs C (q)18q +q2. What is the industry equilibrium (price, output and profits) if the firms have Cournot beliefs?
Disscuss the contrasting views of the Keynesians and the monetarists with regard to an appropriate.
In October 2004 and 2005, real GDP in the United States increased by 3.6 percent, while nonfarm payroll jobs increased by only 1.4%.
Illustrate what are the major types of transactions or activities that result in demand for foreign currency in the spot foreign exchange market.
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