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Consider an economy in which people live two-period lives in overlapping generations but are endowed only in the first period of life. Capital has a minimum size, k*, which is greater than the endowment of any single individual but less than the total endowment of a single generation. Capital pays a one-period gross real rate of return equal to x. The population grows 10 percent in each period. There exists a constant nominal stock of fiat money owned by the initial old.
a. In what sense is capital illiquid in this economy? Is fiat money subject to this same liquidity problem?
b. Describe an intermediary that might overcome the illiquidity of capital so that intermediated capital may be used to acquire consumption in the second period of life.
c. Suppose there is only one person in each generation who is able to run an intermediary. What is the minimum rate of return that person must offer to attract depositors? For what values of x can this individual make a profit?
d. What rate of return will be offered on deposits if there are many people in each generation able to run an intermediary?
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Beasley Worldwide Data Destruction (BWDD) purchases a new computing center for $200 million. They estimate a life of 5 years and a salvage value of $40 million. BDWW uses MACRS depreciation in the five year category. They also estimate revenue at $10..
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Choose two different rough drafts to evaluate (when possible, please choose the drafts you will review that have not been reviewed by your classmates or that only have one review.
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Suppose the own price elasticity of demand for good X is -3, its income elasticity is 1, its advertising elasticity is 2, and the cross-price elasticity of demand between it and good Y is -4. Determine how much the consumption of this good will chang..
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When moving up along the production function, the marginal product of capital will:
Why do classical economists and Keynesian economists agree on the long-run effects of a fall in aggregate demand but not on the short-run effects?
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