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Consider three alternative policies, each with a different set of outcomes in terms of output and inflation, as shown in following table:Output Output Output Inflation Inflation InflationPolicy A Policy B Policy C Policy A Policy B Policy C500.0 500.0 500.0 3.0 3.0 3.0515.0 500.0 520.0 3.0 2.8 3.2530.5 520.0 535.0 3.0 2.0 4.0546.4 540.0 550. 3.0 1.5 4.5562.8 562.8 562.8 3.0 1.5 4.5
Potential output is 500 in period 1 and rises 3% per year. The Fed's objective function is ?{-2+(w x -2)}yt ntwhere w=1, and the inflation target is 2.0%.
A. Calculate the value of the objective function over the 5-year period for each of the 3 policies.
B. Which policy is best? Why?
C. Would the answer to part B change if w =5? If so explain.
A clinic uses doctors and nurses optimally and is servicing the maximum number of patients given a limited annual payroll. The last doctor hired treated 1,600 extra patients in a year, while the last nurse hired treated 1,000 extra patients in a y..
A manufacturer is considering replacing a production machine tool. A new machine tool will cost $37,000 and have a life of 4 years with no salvage value, and will save the company $5000 per year in direct labor costs and $2000 per year in operatin..
In late 1990s more than twenty-five domestic steel firms have filed for bankruptcy. A combination of low values with strong competition through foreign competitors and so-called legacy expenses of unions are cited as the primary reason why so many s..
Assume Wilbur's utility function is U=(x1)*(x2)*(x3). Further assume that the law dictates that Wilbur consume two units of X1 for every unit of X2. Determine Wilbur's demand function for good 1. Explain, in words, all the steps in your deriv..
Until recently you worked as an accountant, earning $30,000 annually. Then you inherited a piece of commercial real estate bringing in $12,000 in rent annually. You decided to leave your job and operate a video rental store in the office space you..
Suppose a consumer buys 10 units of good X and 20 units of good Y every year. The following table lists the prices of goods X and Y in the years 2005-2007. Assume that these two goods constitute the typical market basket.
For the same loan described under Q3, the individual decides that instead of selling the house after the 71st payment, to keep it and shorten the pay off period by increasing the montly payment by $150 each month. What is the number of months re..
Explain how the Federal Reserve policy makers effect interest rates. Describe the difference between expansionary and contractionary rules.
In this exercise, you will find actual points on the combined PPC of the two states. For each of the following values of one good, calculate the maximum amount of the other good that the two countries could produce working together.
A consumer purchases two goods, food (F) and clothing (C). Her utility function is U(F,C) = FC + C; thus, MUf = C and MUc = F + 1. The price of food is Pf , the price of clothing is Pc , and the income of the consumer is I.
A firm produces paper clips with the following production function: F(K,L) = 3K^(2/3) L^(1/3) where K is the capital used in production and L is labor used in production. The rental rate for capital is r = 24 and the wage rate is w = 6.
Suppose that technophiles are willing to pay $400 now for the latest iphone, but only $300 if they have to wait a year. Normal people are willing to pay $250 and their desire to purchase doesn't vary with time.
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