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a. Use equations (3) and (4) to forecast both the price level and the level of output that result from the simple AS - AD model of Section 21-2. You may assume that the slope of the aggregate supply curve is 2⁄3; that the values of the money supply, velocity, and potential GDP are 9, 8, and 7, respectively; and that the expected price level is 5.
b. Evaluate your forecast in light of the Lucas critique.
c. How does this forecast differ from that which would result from a perfect-foresight model? d. Is this forecast better or worse? Explain.
A driver faces a 5% probability that his car will be in an accident and will be worth nothing. Consider three drivers with cars that have value $30,000. Abdulla's utility function over the value of his car W is u(W) = ln(1 + W).
Golden Star Winery produces midlevel wines consumed primarily in North America. Given below is the projected income statement for the company for 2011. Projected Income Statement (2011) Sales (100,000 cases at $7 per case) $700,000 Cost of goods s..
what is the expected revenue from auctioning the item
A depository institution holds $150 million in Required Reserve and $10 million in Excess Reserves. Its remaining assets include $440 million in Loans and $150 million in Securities. If the institution's only liabilities are transaction deposits, ..
Caroline received a $1 million payment from a lottery ticket. She decided to use the money to purchase a cupcake business. If Caroline had invested the $1 million in a money market account, she would have made $30,000 in interest each year.
Whenever the price of any of the goods increase, Richard gives a call to his rich uncle who immediately transfers funds to him so that Richard's utility remains constant. Assume the price of burritos increased by 20%, and even after Richard is com..
List the economic benefits of, and problems with, subsidized college education. Examine subsidized college education by considering answers to the three basic economic questions:
Suppose that a security costs $3,000 today and pays off some amount b in one year. Suppose that b is uncertain according to the following table of probabilities a) Calculate the return (in percent) fore each value of
Assume that a "leader country" has real GDP per capita of $40,000, whereas a "follower country" has real GDP per capita of $20,000. Next suppose that the growth of real GDP per capita falls to zero percent in the leader country and rises to 2 perc..
Explain what is meant by the value style and growth style in equity investments. What sort of return and volatility have been experienced over long periods of time for each of these styles?
Compute the elasticity for each variable and briefly comment on what that data gives you in each case.
Bygrave forecasts incremental annual sales revenue of $940,000. Similarly, Bygrave expects total variable costs to increase by $500,000, and total fixed costs to increase by $80,000. Bygrave's marginal tax rate is 39%.
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