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Question
The following question will examine what happens in the money market when the interest rate approaches zero.
a) Which interest rate represents the opportunity cost of holding money - the real or the nominal interest rate? Explain.
b) Argue intuitively why the nominal interest rate (eg, the yield on a riskless bond) cannot fall below zero.
c) Can the real interest rate fall below zero? Explain.
d) Modify Figure 28-2 in the textbook to take into account this "zero lower bound" for the nominal interest rate. You need to show graphically the slope of the MD curve as the nominal interest rate approaches 0. Explain the shape of the MD curve.
e) Using your graph in part (d), explain what happens following a monetary expansion when the nominal interest rate is already close to 0.
Assume your expected incomes in years one and two are $60,000 and $70,000 respectively. You have 40,000 in cash in year 0. Market interest rates for one-year loans are 8% in year 0 and 14% in year 1.
True/False: For each of the following concepts, decide whether it's true or false, and briefly explain why (2-3 sentences). You can also use diagrams if they are helpful. Each correct answer is worth.
What is the firm's cost function when the cost of pollution certificates is included? What is the firm's marginal cost function when the cost of pollution certificates is included? Derive the firm's supply function.
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GRAND RAPIDS, Mich. - Kellogg Company on Monday said its earning growth 17.3% in the 2nd quarter on strong firm wide sales growth, beating Wall's Street's expectations.
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The agricultural market for corn usually can be characterized as a purely competitive industry. How might the following events affect the shot-run cost curves and output for a firm in the industry?
Illustrate how you would use the rest of the information above to better assess the impact of the influx of immigrants.
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