How might the given policy be exasperating the recession

Assignment Help Microeconomics
Reference no: EM131725676

Problem

1) As of the Spring of 2011 interest rates are near 0% and have been for sometime.

a) According to theory, if you lower interest rates, business investments and consumer purchases of large durable goods are supposed to increase. In return, this is to help pull us out of a recession. However, this policy of extraordinarily low interest rates has not stimulated investment demand. Why do you think this is the case (hint - think Keynes and animal spirits).

b) How might this policy be exasperating the recession (hint - think of savers and the wealth effect)

c) A colleague of mine said that ‘monetary policy does nothing but create bubbles in the economy'. Do you agree with this statement? How did the low interest rate environment of the ‘post dot com' bubble day help to contribute to the housing bubble? Do you forsee another market bubble in the economy (ie, in the housing market or stock market or in ‘gold stocks' - explain relating low interest rates to a new bubble).

Reference no: EM131725676

Questions Cloud

What ethical issues does patent protection bring up for us : What ethical issues does patent protection bring up for us? How can you see the primary schools of ethics at work in this context?
Develop a request for proposal to send to the transcription : What things should be considered in conducting a cost-benefit analysis on each project? Develop a request for proposal to send to the transcription.
Prepare a term paper related to acid rain : CHM1004 - Pick any area related to chemistry that interests you and Topics will be approved on a first-come first-served basis in the event
What will be the equal annual payment amount needed to be : If you want to repay this loan in 10 years, what will be the equal annual payment amount needed to be?
How might the given policy be exasperating the recession : 1) As of the Spring of 2011 interest rates are near 0%. How might this policy be exasperating the recession (hint - think of savers and the wealth effect)
Eight years to maturity if the market interest rate : How much should you pay for the $1,000 bond with 7% annual coupon payments, payable semiannually, and eight years to maturity if the market interest rate.
Analyze what are the economic benefits of the flu shot : Analyze what are the economic benefits of the flu shot? In what ways has the government become involved in distribution of flu shots? For what reasons?
Calculate the 2 projects npvs-irrs : Calculate the 2 projects' NPVs, IRRs, MIRRs, and PIs, assuming a cost of capital of 11%. Which project should be selected?
What are the risks with the strategy : Duff is really interested in decreasing his tax liability, and by his very nature he is somewhat aggressive.

Reviews

Write a Review

Microeconomics Questions & Answers

  Many large pharmaceutical companies spend billions of dollar

a) (10) Suppose a pharmaceutical company estimates that if they spend $1 billion on the development of a new drug, they can expect to earn $100 million in accounting profit as a result (so their stream of future revenue would be $100 million higher t..

  Why to choose to retain hundred percent club

As noted earlier in this chapter, IBM fell on hard times during the 1980s and ultimately abandoned its no-layoffs policy in the 1990s.

  Compare costs calculate for table two to costs calculated

Assume that fixed costs remain at $250. When the price of a variable input changes which other costs will increase? Compare the costs you calculate for table two to the costs calculated in table one to find your answers.

  A producer of synthetic motor oil for automobiles and light

a producer of synthetic motor oil for automobiles and light trucks has made the following statement one quart of

  Elasticity of demand

The government wants to decrease the consumption of electricity by 10 percent. The price elasticity of demand for electricity is -0.4.

  What is the seller''s expected revenue

What offer should the outside buyer make if her value is $240,000? More generally, what offer should she make as a function of her value, v?

  Difference between short run and long run

Describe the difference between short run and long run as they are used in economics. Differentiate between Economics of scale and Diseconomies of scale.

  Determine the strategy behind de beers shift

determine strategy behind De Beers' shift from controlling supply to building relationships. How much control over market De Beers currently has with strategy?

  Confidence determines wealth-wealth determines demand

Provide your opinion as to whether Fundamentals Drive Markets or does Confidence Drive Markets. Fundamentals determine employment, employment determines profits, and profits determine the stock price. Confidence determines wealth, wealth determines d..

  Draw a supply-and-demand digram

Draw a supply-and-demand digram to show what happened to price, quantity, consumer surplus, and producer surplus in the market for computers.

  Received a major highway construction contract

A road building contractor has received a major highway construction contract that will require 50,000 m^3 of crushed stone each year for 5 years. The stone can be obtained from a quarry for $7.80/m^3. As an alternative, the contractor has decided to..

  The r-squared is 436 when two parents education variables

in a multiple regression model using 310 students to explain college grade point average the following explanatory

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd