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A central bank that adopts a fixed exchange rate system may sacrifice its monetary autonomy in setting its domestic monetary policy. It is sometimes argued that when this is the case, the central bank also gives up the ability to use monetary policy to combat the wage price spiral. The argument goes like this: Suppose the workers demand higher wages and employers give in, but that the employers then raise output prices to cover their higher costs. Now the price level is higher and the real balances are momentarily lower, so to prevent an interest rate rise that would appreciate the currency, the central bank must buy foreign exchange and expand the money supply. This action accommodates the initial wage demands with money growth and the economy moves permanently to a higher level of wages and prices. With a fixed exchange rate there is thus no way on keeping wages and prices down". What is wrong with this argument?
Compute the price elasticity also advertising elasticity. Interpret each one. Illustrate what is the predicted range of Demand for Sun workstations with 95 percent (%) confidence level.
For each option calculates the profit-maximizing price and quantity. Which, if any, of these compensation schemes would alter the deadweight loss from monopoly.
Market for this commodity is characterized by perfect competition. Government steps in and levies a unit tax of 10 on this commodity. Illustrate what is revenue raised by government through this tax.
Depreciation in the value of the Japanese currency in relation to the US dollar does not allow the Japanese firms to sell more in the USA marketplace.
A sporting goods store has estimated the demand curve for a popular brand of running shoes as a function of price. Compute demand elasticity using the midpoint formula.
Avoid having developed economies regress to a Smoot-Hawley type of isolationism or protectionism to avoid job losses in import-competing sectors.
Elucidate the difference among nominal and real variables and give tow examples of each. According to the principle of monetary neutrality, which variables are affected by changes in the quantity of money.
Find internal rate of return to nearest whole percentage point. Oak Furnishings is considering a project that has an up-front cost.
Elucidate how the strength of the economy as a whole affected the marginal benefits and the marginal costs associated with that decision.
A shirt company spends $1,000 per week on rent for its factory. Each shirt made at the factory requires $2 worth of cloth and $8 worth of labour and energy. Illustrate what is the marginal cost of a shirt.
Explain how is the cross elasticity theory used to empirically define economic markets.
You have been asked to produce a forecast for your company's new product (bottled water). List out and briefly describe four factors you would consider before giving the forecast.
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