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Question 1 Consider investments, given the following information: State of the world 1 2 3 4 5 Probability 0.1 0.2 0.4 0.2 0.1 Rates of Return -A 0.0 5.0 8.0 10.0 15.0 -B -12.0 5.0 9.0 12.0 24.0 A) Compute the expected return, variance and standard deviation for the returns of each of the two investments Compute the correlation coefficient and covariance for the two investments B) Plot the risk-return combination achieved by combining the two assets in the following proportions: 0:100% , 25:75% , 50:50% , 75:25% , 100:0% . Question 2 What are some of the advantages and drawbacks of risk-based premiums? Explain.

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Question 3 Suppose that financial instruments generate the following stream of income: $1000 in the first year, $1500 in the second year, and $2000 in the third year. Assuming that market interest rates are 6%, calculate the duration. What would happen to the market value of these instruments if the market interest rate were to rise to 9%? Question 4 Assume that a bank has assets of $75 million with duration of 6 and liabilities of $65 million with duration of 6. What is the duration gap? What would happen to net worth if market interest rates rose by 2% ? How would the bank reduce interest rate risk in the event of an interest rate increase? Question 5 That residential mortgage lending interest rates might be higher in Atlantic Canada than elsewhere in the country proves that banks show a bias against Eastern Canadian borrowers. True or false? Explain your answer. Question 6 Why is the contagion effect in the banking industry a more serious problem than in other industries? What are the implications of this phenomenon?

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1. 2) The marginal damages (marginal external cost) from pollution by a firm are MD=15Q, where Q is units of the final output. Marginal private cost of output is MPC=20Q, and demand for the output is MV=200-5Q. Find the equilibrium quantity of output in a competitive market, find the efficient output, and find the Pigouvian tax which induces firms to produce the efficient level of output? 2. The Coase Theorem says that if bargaining costs are nil (zero), any clear assignment of property rights will, after bargaining/trading occurs, result in an efficient allocation of resources. Describe any other conditions that the theorem may impose and comment on the validity or usefulness of the theorem in "the real world". 3. True, false, or uncertain. Explain. The assumptions of Arrow's impossibility theorem imply that markets cannot be used to make collective decisions. 4. The government has established a program of marketable pollution permits. Each firm emitting sulfur into the atmosphere has been granted 20 permits for 1 ton of sulfur emissions each. Each firm must reduce its emissions by 10 units. The marginal abatement costs of firms 1 and 2 are: MAC1 = 40 + 10A and MAC2 = 20A , where A is the level of abatement. A) What are the MAC for the two firms if permits are NOT tradeable? B) If the permits are tradable, how much abatement will each firm do and what will be the price of permits? (Hint: total abatement must still be 20 units.) C) How might your answer change if permits were auctioned off instead of granted to firms?

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Does the transaction of a buyer and seller directly affect a third party in the home building industry? Are the common resources rival or excludable in home building industry?

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1. Does the home building transaction of a buyer and seller directly affect a third party? Is the effect a negative or positive externality? Explain please. 2. In home building are the goods or resources rival, excludable, or neither? Explain please. 3. How is wage inequality measured and if it is present in home building 4. Could you please explain if there are any current or past news events related to wage inequality in home building. 5. How do the economy affects the success of the home building industry. 6. What are some economic influences that can affect the home building industry in a negative way.

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add anything in or move it around that will help my paper, please try not to omit anything if you can I' short on the essay by 134 words, check for plagiarism, by all means please check for spelling & grammer, also strength and clarity of thesis statement, and the relevance of quotes. This is the apa format

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Question 1 Financial institutions are subject to risks from many sources. Carefully describe or define the following types of risk and explain what financial institutions can do to manage these risks. A) Default or Credit Risk B) Interest Rate Risk C) Foreign Exchange Risk D Inflation Risk Question 2 The financial system channels billions of dollars every year from savers to people with productive investment opportunities. Very little of this flows directly from ultimate savers to ultimate borrowers .Mishkin and Serletis identify the following ?puzzles? about financial structures. A) Stocks are not most important source of external finance for businesses. B) Issuing marketable securities is not primary funding source for businesses. C) Indirect finance ( financial intermediation) is far more important than direct finance. Provide explanations for these ?puzzles?. Question 3 a) Suppose that both firms and households become more confident about the performance of the economy and revise their forecasts of economic growth upwards. Using a graph describe and explain what would happen to the demand and supply of loanable funds and the equilibrium (real) interest rate. b) Suppose that the newly appointed Governor of the Bank of Canada announces that as of September 1, 2006 the Bank will no longer aim for zero inflation but instead will aim for 5% inflation annually. Furthermore, suppose that the tax rate on interest income is 50%. Using a graph, explain what will happen to the interest rate. Question 4 a) How can the behaviour of chartered banks and Bank of Canada cause the growth rate of the money supply to be procyclical (that is rising during periods of strong economic growth and slowing during recessions)? b) (Why) is price stability a desirable goal of a central bank? Explain fully? Question 5 a) Describe how a chartered bank determines its optimal reserve ratio. b) Explain why the reserve ratio chosen by a chartered bank may not be optimal from the point of view of society. c) Apart from setting required reserve ratios, describe two policy options available to governments (or central banks) to deal with the issue(s) you identified in b) . Explain how these policies resolve the issues identified in b) and any shortcomings of these policies. Question 6 a) Typically there is a spread between the saving and borrowing rates of financial institutions i) Explain the factors which determine the magnitude of this spread. ii) Why does the magnitude of the spread matter, from the point of view of society? b) Most central banks become quite independent of government, in terms of setting the goals of monetary policy and the setting of the instruments to achieve these goals. Carefully discuss the advantages and disadvantages of giving central banks independence, in terms of setting goals and the use of instruments.

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Answer the following questions by indicating whether each statement is true or false, and defend your answer. 1) An indivisible object is to be sold by a third?price sealed?bid auction. There are three bidders, i=1,2,3. The value of the object to person i is vi. Person i must submits a non? negative bid bi. The object goes to the person who submits the highest bid. The winner pays an amount equal to the lowest bid and the losers pay nothing. The winners?s payoffs is the value of the object to her and the amount paid. The payoffs to the losers are zero. Is it a dominant strategy for each person to bid her true valuation? 2) According to the Coase theorem, there is no need for quotas or tax on pollution because agent will find a way to reach the efficient allocation by bargaining. Part B Long question. 1) There is 10 identical agents in the economy, the utility function is given by u(x,G) = x + G 1 2 where x is consumption good (price is 1), and G is the public good. The cost of producing the public good 2G. If government use T lump sum tax to pay for the public good what is the optimal tax T and G. (Optimal in the sense of the Samuelson?s rule) 2) Airplanes landing at a municipal airport create noise pollution that is costly for a resident living nearby. The residents has a marginal willingness to pay (marginal benefit) for noise reduction equal in dollars per month to B(R) = 100−2R, where R is the reduction of noise relative to the unregulated level, measured in decibels (DB). There is a technology that would allow the airline to reduce the noise produced at a constant marginal cost of $60 per DB. (a) What is the efficient level of reduction for these preferences? (b) What tax rate, if imposed on the airline, would lead to efficient reduction? (c) Graph your solution for part (a) and (b). 1 ECON 302 Microeconomic Theory II Practice questions: Moral Hazard Part A: For each of the following statements indicate whether is true or false, and defend your answer. 1) In a Principal?Agent model, if the probability of failure (1 − π1) given that the agent chooses high effort (e=1) is equal to zero, it is then always possible for the principal to satisfy the incentive constraint, while imposing no risk on the agent. Consequently, the efficient level of effort will always be implementable. Part B: Long questions 1) Petrowewillfind is a small oil prospector. The utility function of the firm is U(w, c) = w 12 −c where w is the payment receive under a given contract, and c is the cost of the level of effort chosen. A big risk neutral oil Compagnie offers a contract to Petrowewillfind to explore some northern territory. The contract take the following form: if the prospector finds oil, the payment will be ws, and if the prospector does not find oil, the payment will be wf . Petrowewillfind knows that with low level of effort (e = 0) the probability of finding oil is 0.2, and the cost of effort is 100. With high level of effort (e = 1), the cost of effort is 500, but the probability of finding oil becomes 0.8. Petrowewillfind can choose not to accept the contract, and still earn 1000. Solve for the contract offer by the oil Compagnie that make sure that Petrowewillfind accept the contract and choose effort e = 1. 2) Suppose you are living in a small town where there is two kind of jobs. You can always work at Pete?s Doughnut for a wage wd and no special effort is required. You can also work for the Police. If you work for the Police you can choose between two level of effort e = 1 or e = 0, if you choose e = 1 the cost of the effort is 1, and the cost is 0 if e = 0. The Police force want to encourage you to choose e = 1, so they give you an efficiency wage wp, and will fire you if they see you choosing e = 0. The probability that you been detected choosing e = 0 is given by q. You utility function is w 12 −c where w is your wage and c is the cost of the effort. 1 a) Suppose q = 0.2 find out the minimum value of wp (as a function wd) that will ensure that you will choose e = 1. b) Suppose that the Police can choose both wp and q. The cost of any given level of q is q2, and assume that wd = 0. What will be the value of wp and q. 3) Suppose there are two types of jobs. The first one is an efficiency wage job (job 2) which requires non-observable effort, and the second one is a non-efficiency job (job 1) which requires no non-observable effort. Every worker who works in job 1 gets a wage w1 = 1+x and suffers no cost of effort. Workers in job 2 get a wage w2 and have to choose between two levels of effort e = 1 or e = 0, if a worker chooses e = 1 the cost of the effort is 1, while there is no cost if a worker chooses e = 0. The probability that a worker who chooses e = 0 is detected by the firm for choosing e = 0 is given by q = 1 4 . The firms with job 2 workers want to encourage the workers to choose e = 1, so they give an efficiency wage w2 but will fire workers who are detected choosing e = 0. Worker?s utility function is given by w 12 − c where w is the wage and c is the cost of the effort. a) Suppose there is a infinite supply of jobs 1 (all workers who are laid off can find a job 1) find the minimum value of w2 as a function x that will ensure that workers choose e = 1. b) Suppose there is a limited number of jobs 1, so workers who are laid off find a job 1 with probability p = 3 4 . Suppose also that the government gives an unemployment benefit equal to b to all laid off workers who do not find a job 1. What is the minimum value of w2 as a function x and b that will ensure that workers choose e = 1. c) What is the impact of increasing unemployment insurance benefit? 2

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For each of the following statements indicate whether is true or false, and defend your answer. 1) In a Principal?Agent model, if the probability of failure (1 − π1) given that the agent chooses high effort (e=1) is equal to zero, it is then always possible for the principal to satisfy the incentive constraint, while imposing no risk on the agent. Consequently, the efficient level of effort will always be implementable. Part B: Long questions 1) Petrowewillfind is a small oil prospector. The utility function of the firm is U(w, c) = w 12 −c where w is the payment receive under a given contract, and c is the cost of the level of effort chosen. A big risk neutral oil Compagnie offers a contract to Petrowewillfind to explore some northern territory. The contract take the following form: if the prospector finds oil, the payment will be ws, and if the prospector does not find oil, the payment will be wf . Petrowewillfind knows that with low level of effort (e = 0) the probability of finding oil is 0.2, and the cost of effort is 100. With high level of effort (e = 1), the cost of effort is 500, but the probability of finding oil becomes 0.8. Petrowewillfind can choose not to accept the contract, and still earn 1000. Solve for the contract offer by the oil Compagnie that make sure that Petrowewillfind accept the contract and choose effort e = 1. 2) Suppose you are living in a small town where there is two kind of jobs. You can always work at Pete?s Doughnut for a wage wd and no special effort is required. You can also work for the Police. If you work for the Police you can choose between two level of effort e = 1 or e = 0, if you choose e = 1 the cost of the effort is 1, and the cost is 0 if e = 0. The Police force want to encourage you to choose e = 1, so they give you an efficiency wage wp, and will fire you if they see you choosing e = 0. The probability that you been detected choosing e = 0 is given by q. You utility function is w 12 −c where w is your wage and c is the cost of the effort. 1 a) Suppose q = 0.2 find out the minimum value of wp (as a function wd) that will ensure that you will choose e = 1. b) Suppose that the Police can choose both wp and q. The cost of any given level of q is q2, and assume that wd = 0. What will be the value of wp and q. 3) Suppose there are two types of jobs. The first one is an efficiency wage job (job 2) which requires non-observable effort, and the second one is a non-efficiency job (job 1) which requires no non-observable effort. Every worker who works in job 1 gets a wage w1 = 1+x and suffers no cost of effort. Workers in job 2 get a wage w2 and have to choose between two levels of effort e = 1 or e = 0, if a worker chooses e = 1 the cost of the effort is 1, while there is no cost if a worker chooses e = 0. The probability that a worker who chooses e = 0 is detected by the firm for choosing e = 0 is given by q = 1 4 . The firms with job 2 workers want to encourage the workers to choose e = 1, so they give an efficiency wage w2 but will fire workers who are detected choosing e = 0. Worker?s utility function is given by w 12 − c where w is the wage and c is the cost of the effort. a) Suppose there is a infinite supply of jobs 1 (all workers who are laid off can find a job 1) find the minimum value of w2 as a function x that will ensure that workers choose e = 1. b) Suppose there is a limited number of jobs 1, so workers who are laid off find a job 1 with probability p = 3 4 . Suppose also that the government gives an unemployment benefit equal to b to all laid off workers who do not find a job 1. What is the minimum value of w2 as a function x and b that will ensure that workers choose e = 1. c) What is the impact of increasing unemployment insurance benefit?

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a. only price; quanity demanded, consumer surplus, and consumer expenditures. b. consumer surplus and price; quantity demanded and consumer expenditures. c. quantity demanded and price; consumer surplus and consumer expenditures. d. consumer expenditures, quantity demanded, and price; consumer surplus

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a. only price; quanity demanded, consumer surplus, and consumer expenditures. b. consumer surplus and price; quantity demanded and consumer expenditures. c. quantity demanded and price; consumer surplus and consumer expenditures. d. consumer expenditures, quantity demanded, and price; consumer surplus

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a. only price; quanity demanded, consumer surplus, and consumer expenditures. b. consumer surplus and price; quantity demanded and consumer expenditures. c. quantity demanded and price; consumer surplus and consumer expenditures. d. consumer expenditures, quantity demanded, and price; consumer surplus

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a. nothing; quantity supplied, producer surplus, and revenues b. producer surplus and price; quanitiy supplied and revenues c. quantity supplied and price; producer surplus and revenues d. revenues, quantity supplied, and price; producer surplus

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a. producer surplus is higher than in equilibrium b. consumer surplus is lower than in equilibrium c. total surplus is higher than in equilibrium d. total surplus is lower than in equilibrium

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a. total surplus in the market increases b. total surplus in the market decreases c. total surplus in the market does not change d. total surplus may increase or decrease, depending on whether costs are increasing or decreasing in production

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a. more chicken and less fish b. less chicken and more fish c. the consumer is already maximizing utility d. more of both goods

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A. inefficient; willingness to pay > marginal cost b. inefficient; willingness to pay < marginal cost c. efficient; willingness to pay = marginal cost d. producing too much consumer surplus; willingness to pay > marginal cost

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a. Larry cannnot increase his utility b. buying more soda and fewer tacos c. buying less soda and more tacos d. not enough information to say

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a. 2 b. 3 c. 4 d. 5

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a. 180 utils b. 200 utils c. 400 utils d. There is not enough information to decide.

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a. 1 waffle b. 2 waffles c. 3 waffles d. 4 waffles

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a. 2 utils b. 4 utils c. 6 utils d. 14 utils

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Suppose the price of frog legs is $2.00 and the price of snails is $1.00. Pierre has $14.00 to spend on frog legs and snails. How many of each should he choose in equilibrium?

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a. $125,000.00 b. $165,000.00 c. $175,000.00 d. $185,000.00

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a. the wages paid to employees of a firm b. the wages that the owner of a firm could have earned in some alternative job c. rent paid to a business' landlord d. the cost of leather used in the production of footballs.

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a. Three new firms enter the computer chip industry b. A firm hires six new workers c. The number of farms in Kansas increases by 10% d. A firm opens two new plants

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a. A firm lays off two workers b. Two firms exit the asbestos removal industry c. A manufacturer increases its purchase of raw materials d. A farmer buys twice his/her usual amount of herbicide

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a. marginal costs are decreasing b. marginal costs are increasing c. marginal costs are constant d. marginal cost may be increasing or decreasing

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a. marginal costs are decreasing b. marginal costs are increasing c. marginal costs are constant d. marginal costs may be increasing or decreasing

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a. "learn by doing" b. experience diminishing marginal returns c. experience increasing marginal returns d. have a U- shaped long-run average cost curve

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a. increasing marginal returns b. diminishing marginal returns c. "learning by doing" d. short-run adjustments

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a. average cost is always increasing b. average cost is always decreasing c. marginal costs are always less than average costs d. none of the above

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a. total variable cost resulting from a one unit increase in quantity b. quantity resulting from a one unit increase in total variable cost c. the change in total variable cost resulting from a one unit increase in the change in quantity d. the change in quantity resulting from a one unit increase in the change in total variable cost

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a. 3rd worker b. 4th worker c. 5th worker d. 6th worker

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a. 10 units b. 5 units c. -5 units d. 0 units

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a. 10 baseballs b. 50 baseballs c. 200 baseballs d. A number of baseballs that is indeterminate from this information

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a. $16.00 b. $48.00 c. $86.00 d. There is not enough information to answer

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a. $84.00 b. $42.00 c. $54.00 d. $24.00

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a. $0.00 b. $100.00 c. $190.00 d. $50.00

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a. $240.00 b. $0.00 c. $80.00 d. $41.67

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a. $60.00 b. $75.00 c. $100.00 d. $400.00

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a. $70.00 b. $74.00 c. $94.00 d. $100.00

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A. increase; increase b. increase; decrease c. decrease; increase d. decrease; decrease

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a. marginal cost is minimized in the short run b. average variable costs are minimized in the short run c. average total costs are minimized in the short run d. average variable costs are minimized in the short run

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a. fixed costs are zero b. average fixed costs are increasing c. average total cost will decrease if production is increased d. average total cost is minimized at the current level of output

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a. marginal cost exceeds average total costs b. marginal cost is less than average total costs c. average total costs are increasing d. marginal costs are increasing

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a. long-run; decreasing b. long-run; increasing c. short-run; decreasing d. short-run; increasing

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a. Marginal cost will rise b. Marginal cost will fall c. Average total cost will rise d. Average total cost will fall

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A. Increase production B. Decrease production C. Maintain production at the current level D. Look for ways to reduce fixed costs

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A. $0.00 B. $7.00 C. $8.00 D. $40.00

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a. $0.00 B. $8.60 c. $10.00 D. $11.60

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A. 1st B. 2nd C. 3rd D. 4th

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A. $130.00 B. $20.00 C. $110.00 D. $4,000.00

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A. 50 B. 100 C. 150 D. 200

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A. Increase production B. Decrease production C. Maintain production at the current level D. None of the above

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A. it cannot be increased to produce a larger quantity of output B. it cannot be used as a substitute for other inputs in the production process. C. it is sufficiently inexpensive to purchase, and firms will want to buy as much as they can. D. it cannot be scaled down to produce a smaller quantity of output

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a. price always equals average cost b. price always equals marginal cost c. price always equals marginal revenue d. price always equals average variable cost

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a. decrease the level of golf ball production b. continue producing the current level of production c. increase the production of golf balls d. shut-down and produce no golf balls

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a. you are maximizing profits if the price of the good is $5.00. b. you will be able to increase firm profits by decreasing output if the market price of your good is $5.00. c. you will be able to increase firm profits by increasing output if the market price of your good is $5.00. d. your average costs are increasing

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a. AVC is less than $90.00 b. AFC is less than $90.00 c. price does not increase d. ATC is greater than $90.00

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a. the firm's short-run supply curve b. the firm's average cost schedule c. the firm's capacity output schedule d. the firm's total revenue minus total cost schedule

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a. should decrease output below 2,000 units b. will earn an economic profit greater than zero by producing 2,001 units c. will lose money by producing 2,001 units d. will earn zero economic profits if you produce 2,001 units.

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a. the US Postal Service b. a single firm authorized to tow illegally parked cars c. the US Treasury selling commemorative coins d. There is no such thing as a government franchise scheme

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a. The firm can increase its output, but it needs to lower its price for only the marginal unit of output. b. The firm can only increase its output by charging a higher price to all customers. c. the firm can get more revenue from new customers by increasing output, but it will lose revenue from existing customers because it lowered its price. D. The firm can get more revenue from existing customers if it lowers its price, but it will lose revenue from new customers by increasing output.

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a. P=MR=AR b. P=MR>AR c. P=AR>MR d. p>MR>AR

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a. It should increase its price. b. it should decrease its price. c. it should keep its price at the same level d. Not enough information to solve.

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AMD and Intel compete with each other to supply computer chips for mid-sized servers that run Web sites and other key business programs. Mark Berrenechea, president and CEO of Rackable Systems of Fremont CA recently remarked that "choice is a wonderful thing" and indicated that Rackable plans to use chips from both companies. Your firm has been hired to advise on this decision. Management at Rackable has determined that their anticipated server requirements can be met equally well with any of the following combinations of numbers of chips (in thousands): Combination Intel: Xeon chip AMD: Barcelona chip A 4 9 B 5 6 C 6 4 D 7 2 17. The MRTS of Barcelona chips for Xeon chips, going from 4 to 5 Xeon chips (Hint: think of Barcelona on the "vertical" and Xeon on the "horizontal" axis), is a. the same as the MRTS going from 5 to 6 b. smaller than the MRTS going from 5 to 6 c. larger than the MRTS going from 5 to 6 d. cannot be calculated without additional data 18. Suppose that price of a Xeon chip is strictly more than 3 times that of a Barcelona. Then, an efficient chip choice would involve a. Combination A b. Combination B c. Combination C d. Combination D e. All combinations have equal cost 19. Now suppose that the price of Xeon chips falls until it is equal to that of Barcelona chips. Then Rackable management should a. shift towards more Xeons b. shift towards more Barcelonas c. make no changes d. buy an equal number of each chip

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1. In a practical sense, write your opinions on the effect a rule stating that university students must live in university dormitories would have on the price elasticity of demand for dormitory space. What impact might this in turn have on room rates and attending university if at all? 2. Many apartment-complex owners are installing water meters for each apartment and billing the occupants according to the amount of water they use. This is in contrast to the former procedure of having a central meter for the entire complex and dividing up the water expense as part of the rent. Where individual meters have been installed, water usage has declined 10 to 40%. Explain that drop, referring to price and marginal utility. Thank you...

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I need some help with the attached ECO assignment.

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Please answer the following questions: 1. What are the advantages and limitations of International Trade in the country of Rodamia? 2. What are the effects on international trade on the U.S. economy? 3. Explain how changes in fiscal and monetary policies affect exchange rate. Please provide sources used.

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1. Consider a von Neumann-Morgenstern individual whose utility function is u(w)=lnw, where w is wealth. Given that the individual faces the prospect of gaining or losing an amount of wealth h with equal probability, determine the maximum insurance premium that the individual is prepared to pay. 2. Given that the Arrow-Pratt measure of absolute risk-aversion is a constant, derive the corresponding form of the Neumann-Morgenstern utility function.

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PLEASE SEE ATTACHMENT

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Q1. consider the following keynesian small open economy: Cd=200+0.69Y Id=80-1000r G=20 NX=85-0.09Y-e e=90 M=115 L=0.5Y-200r Y(full employment)=300 In this economy, the real interest rate does notdeviate from the foreifn interest rate. a) Assuming this economy is in general equilibrium, whatis the value of the interest rate r? b)Assuming fixed nominal exchange rate and a fixed domestic price level, what is the effect on domestic output if the foreign interest rate increases by 0.05? what is the size of the nominal money supply in the new short run equilibrium? c) Assuming flexible exchange rates and a fixed domestic price level, what is the effect on domestic output if the foreign interest rate increases by 0.05? waht is the value of the real exchange rate in the new short run equillibrium? d) In the long run, how does the domestic price level respond to an increase in the foreign interest rate? Q2. Country X's major trading partner is country Y, a large open economy. The economy of country Y is sufficiently large that itdeermines the world interest rate. (Thus the world interest rate is determined by the intersection of country Y's Is and LM curves.) Country X, on the other hand, is economically small so that the interest rate in country X does not deviate from the world interest rate. changes in country X has no effect on country Y. a) Assuming flexible exchange rates, and assuming a fixed price level, what are the effects on country X of a monetsry expansion in country Y? b) Assuming flexible exchange rates , and assuming a fixed price level, what are the effects on country X of a fiscal expansion in country Y?

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Hello, I need for short answers of these questions. Thanks. Please see attached file name " Homework-October2008-Post" for good display. Thanks. 1) The following statement was released by the FOMC 18 months ago following its meeting on March 21 of 2007. The Committee, although hopeful for a future of moderate growth with moderating inflation, was more concerned at that time with the potential inflation threat than with a recession threat. The Federal Open Market Committee decided today to keep its target for the federal funds rate at 5-1/4 percent. Recent indicators have been mixed and the adjustment in the housing sector is ongoing. Nevertheless, the economy seems likely to continue to expand at a moderate pace over coming quarters. Recent readings on core inflation have been somewhat elevated. Although inflation pressures seem likely to moderate over time, the high level of resource utilization has the potential to sustain those pressures. In these circumstances, the Committee's predominant policy concern remains the risk that inflation will fail to moderate as expected. Future policy adjustments will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information. At the time this statement was released in late March yields-to-maturity on Treasury Securities with maturities of 6months, 1 year, 2 years, 3 years, and 5years, were all below the Fed?s target rate in the federal funds market of 5.25 %. (They ranged from 5.00% on the 6 month T-bill, to 4.86% on the 1-year, 4.57% on the 2- year, 4.51% on the 3- year and 4.51% on the 5-year T-Note. a) Why is it unusual for yields on Treasury securities to be lower on securities with longer periods of time until their maturity date? Explain your answer in a few sentences. b) What did this pattern of yields suggest about the attitudes of financial market participants (other than the Fed!) towards inflation risks versus recession risks in the US economy at this time? Explain your answer in a paragraph. 2) Suppose the CFO of an American corporation with surplus cash flow has $1 million to invest. Suppose that the interest rate on 1 year CD deposits in US banks is 2 %, while the rate on 1 year CD deposits (denominated in pounds sterling) in British banks is currently 5 %. Suppose further that the CFO expects that the exchange rate will change from (.5) British pounds per $ to (.6) British pounds per $ during the coming year. Should the CFO invest in CD's denominated in dollars or in pounds? Show your work! 3) Since last February the Fed has been supplementing its open market operations with a greatly expanded program of direct lending (both overnight and short term 28 day loans to commercial banks and commercial bank holding companies. It has also begun a program of buying commercial paper from money market funds. A) Explain how this expanded Federal Reserve lending and commercial paper purchases affect supply and demand conditions in the Federal funds market. B) How can the Fed?s trader in the ?open market? offset the effects of this lending on the Fed funds rate and maintain the Fed?s target interest rate in this market? 4) A) Despite substantial weakness in the US economy and the turmoil in credit markets, the US Dollar has increased substantially in value against the British Pound and the Euro in the last two months after having declined throughout most of the previous 10 months. The reason appears to be that economic conditions in Europe and England are deteriorating rapidly as well but their central banks were later than the Fed in switching from an anti inflationary monetary policy to an expansionary monetary policy. Explain how central banks? monetary policies can affect currency values and apply that explanation to the initial decline and subsequent rise in the $?s exchange rate versus other key currencies such as the Euro over the last year. B) What are the pros and cons of the $?s recent rise in value? 5) One of the major economic policy initiatives which GW Bush has advocated-- and which John McCain enthusiastically endorses-- is a proposal to make permanent the ?temporary? tax cuts that sharply reduced marginal tax rates on high income taxpayers and which were initiated in the economic slump during his first term in office. (These tax rate reductions were originally scheduled to fade out between 2009 and 2010) Meanwhile, many democrat and republican politicians are calling for passage of an ?economic stimulus? package at this time. Assume that the economic stimulus package involved tax rebates for all income tax filers to be distributed in quarterly increments over the upcoming year or as long as the unemployment rate remains over 6%. A) What economic arguments/assumptions could be used to justify a policy of making Bush?s temporary tax cuts permanent? B) What arguments/assumptions could be used to justify rolling back those tax cuts (returning tax rates to Clinton era levels with tax brackets to which those rates apply adjusted upward to reflect inflation since then). C) What arguments/assumptions could be used to support an economic stimulus package at this time but to allow the Bush tax cuts to expire in 2010? Note: In both part A and B explain your answer carefully using AD and/or AS based arguments. 6) Although the US economy might be in even worse shape at the present time if the Fed had not reduced its Fed funds target between last August and this April from 5.25% to 1.5 %, most economists believe that we are currently in a recession. Why have the Fed?s rate reductions not had a more powerful affect in preventing a recession?

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Will Bury?s Price Elasticity Scenario Will Bury, enterprising inventor, is convinced that soon everyone will be reading or listening to everything digitally, including all the great books that, up to now, have been mostly available in hardcopy. He knows, of course, that there are books on CD, but these are relatively expensive and have been recorded using human readers. He also knows that there is technology that will transform the printed word into audio, but until now the sound is somewhat inhuman. Will plans on speeding up the transformation with a proprietary technology he has developed and patented that takes the printed word for text materials and creates a file with the option of reading it digitally or listening to it with a very realistic synthetic voice. Will knows that he has free access to books no longer under copyright protection, and he figures he can pay a $5 per title royalty fee for copyrighted books to greatly expand his catalog. So far, he has limited himself to English language books but is working on a language translation option as well. To date, Will?s technical skills outpace his business acumen. He is struggling with some basic decisions. He?s been doing this as a garage operation for the last few years and has missed a lot of his daughter?s soccer games while he held down his job at High Tech Digital Industries to keep his family comfortable on his $200,000 annual salary and benefits package. But eventually, he may have to decide whether to devote most of his time to his invention. Moreover, he is not sure how to determine all the applications for his technology, who would want it, how it would be delivered to customers, how many books would be bought at what price, etc. Even after he has secured the rights to copyrighted material, he needs some help getting his hands on the books he wants digitally transformed and scanning them into his digitizer. It?s not difficult to train others to do this, but it takes about an hour per 500 pages to complete the transformation into the digital files that enable them to be read or listened to. To make sure the process works well, Will has been doing this himself, but he realizes this is not a good use of his time nor will it get many books digitized. Fortunately, the digitizer Will uses is inexpensive to reproduce for others to use, and Will is certain that the security he has encoded into it will prevent others from unauthorized replication of the device. But where are these people whom he can hire to do the work and how much should he pay them? If it is easy to train workers in the US to do this, could Will pay $10 an hour for someone with the skills of a high school graduate? If this is the skill level, could he pay a worker overseas $2 an hour for the same service? To address some of these issues, Will has been doing some research. First, he checked online to discover that a roughly 500-page book on CD costs about $20. This is a pretty good substitute for his audio files of a book, and further research suggests that he could apply his digitizing process to more recent copyright-protected books for about a $5 royalty fee per book. Of course, he?d still incur the labor charge of scanning the book. Will continues to wonder whether people want to read digitally or listen to the books they enjoy for pleasure or whether they still prefer a physical book to read. Will found an article from a reputable source that suggests customers of digital and audio books are relatively affluent, their household incomes grow above average, and acceptance of digital reading for pleasure is lagging behind acceptance of digital reading for business, but that digital listening to books is attracting the same audience who download music to digital devices. Further research has suggested that price is an important feature driving the appeal of digital book files. Will is trying to apply some earlier experiences in movie distribution to his digital book project. When movies were first released to general consumer distribution as videotapes, they were expensive, often about $80 per title. When the price was lowered closer to $20 per title, the evidence suggests that volume sales typically went up 600 percent. Of course, not everything stayed the same; in recent years movie titles have been released more quickly following their showing in theaters, there have been more extra features on the DVDs due to greater storage capacity, and the format changed to disk from videotape. Some have hinted that, while there are fewer blockbuster hits now, there are more titles appealing to a broader set of tastes. Will is trying to find more evidence of the effect of price on volume demand, but this is all he has discovered so far. Nevertheless, Will needs to determine a launch price when he first introduces his digital titles to the market. He set up a Web site offering his small catalog of books and set the price at $10 for a title on which copyright has lapsed and $15 a title when he has to pay a royalty. He is a little disappointed in his sales in the first six months of operation, selling only 1000 of the older books (lapsed copyright) and 2000 of the newer books. Moreover, he is confused as to why he sold twice as many of the more expensive books. He wonders whether he should lower or raise prices to increase his revenues. What can he expect to happen to his volume sales if he does change price? If he decides to change price, up or down, is it better to make a small change and observe the effects on quantity or will customers more likely react to a change in price of at least $1 per title? If he does change his price, will this have any effect on the prices charged by big-volume sellers for conventional hardcopy books? While Will is pondering his pricing strategy, he visits a friend, Elsa Budley, who has had more experience selling online. Elsa started an online business selling her artwork. While her initial sales were a bit disappointing, she offered some shocking advice. She discovered that she actually sold more artwork when she raised her price at the same time that she expanded her online advertising budget. Elsa thinks Will?s key to success is to raise price and sell more books! Will Bury senses he is on the brink of great success and fortune with a proprietary technology that transforms how we access books and other materials currently offered only in print. But he is also on the verge of making some very fundamental business mistakes that could rob him of his well-deserved success. He can be more successful if he observes some basic concepts included in the early part of this course.

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please assist with these questions. please let me know if the file isnt visible so that i can resend it asap

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Price Differentiation A nightclub owner has both student and adult customers. The demand for drinks by a typical student is QS=18-3P. The demand for drinks by a typical adult is QA=20-2P. There are equal numbers of students and adults. The marginal cost of each drink is $2. a) If the club owner could separate the groups and practice thirds degree price discrimination, what price per drink would be charged to members of each group? What will be the club owner?s profit? b) If the club owner can implement first degree price discrimination and can serve each group by offering a cover charge and a number of drink tokens to each group, what will be the cover charge and the number of tokens given to students be? What will be the cover charge and the number of tokens given to adults? What is the club owner?s profit? if you have any of the 21 minutes left can you quickly help me with this one please!: Market shares of the largest 4 firms in industry A are given by: 30% 18% 16% 16%. Suppose there are a total of 10 firms operating in industry A. a) What are the upper and lower bounds of the degree of concentration in the industry as measured by the Herfindahl&#8208;Hirschman Index. For simplicity assume that the smallest firm has at least 1 percent market share. b) Suppose that after a horizontal merger, there are now total 9 firms operating in the industry and the postmerger industry shares of the largest 4 firms are given by: 30% 22% 16% 16% What is the upper bound of the post&#8208;merger concentration rate as measured by Herfindahl&#8208;Hirscman Index?