Suppose that the bond market begins in equilibrium. Suppose also
that expected future inflation decreases. What...
Suppose that the bond market begins in equilibrium. Suppose also
that expected future inflation decreases. What is the effect of
this action on equilibrium interest rates and bond prices? Use the
bond market to show this.
Suppose the market is initially in equilibrium, and then demand
decreases while supply
decreases, the equilibrium price
will _________ and the equilibrium quantity ______________ .
A.) Rise; will increase
B.) Rise; is ambiguous/indeterminate
C.) Drop; is ambiguous/indeterminate
D.) Ambiguous/indeterminate; will fall
Suppose the economy is initially at labour market
equilibrium with stable prices (inflation is zero). At the
beginning of year 1, investment declines and the economy move into
recession with high unemployment.
a) Explain why a negative bargaining gap arises?
(b) Assume the negative bargaining gap is -1%. Draw a Philips
curve and show the impact of this on inflation.
c) Without a monetary or fiscal policy to counter the negative
bargaining gap, what would be the impact on Philips...
Equilibrium in the loanable funds and goods markets: Suppose
that the economy begins in equilibrium in the loanable funds and
goods market. Then, the government decides to reduce its purchases
without changing taxes. According to the Classical model:
a) How do the supply and demand for loanable funds in the
loanable funds market shift? Draw a diagram to show what happens to
interest rates and investment in the new equilibrium.
b) How do the supply and demand for goods in...
A competitive market begins in a situation of long-run
equilibrium. Then, there is a decrease in demand. Describe the
process that eventually leads to a new short-run and long-run
equilibrium. Show your graph and Explain. Draw a shape to show the
firm's short-run economic profit (or loss).
Suppose the current equilibrium point for the market of good X
is (200, $100). Also we know that ɛ = -2 . Suppose the government
grants an unit subsidy of $3 on good X, calculate the cost to the
government under each of the following situations.
i) The supply curve for good X is horizontal.
ii) The supply curve for good X is vertical.
5. Suppose the current equilibrium point for the market of good
X is (200, $100). Also we know that ɛ = -2 and n = 1.5 . Suppose
the government imposes an unit tax of $3/unit of the good.
Calculate the size of government revenue. [You are NOT allowed to
use the short cut formula.]
Suppose an economy is Initially in equilibrium at potential
GDP, Y*. Then the government decreases the net tax rate (t).
Briefly explain in words (1-2 sentences without a diagram) What
type of gap would be caused by this policy AND the impact on real
GDP and the price level in the short-run.
Decreased net tax rate cause an overall decrease in real
GDP,
Briefly explain in words (1-2 sentences with no diagram) how
the economy adjusts back to the long...
Suppose an economy is Initially in equilibrium at
potential GDP, Y*. Then the government decreases the net tax rate
(t).
Briefly explain in words (1-2 sentences without a
diagram) What type of gap would be caused by this policy AND the
impact on real GDP and the price level in the
short-run.
Briefly explain in words (1-2 sentences with no diagram)
how the economy adjusts back to the long run equilibrium if left
alone and no further fiscal or monetary...
a) If the interest rate decreases, how will it impact the market
price of a bond?
b) Do long-term bonds have higher price risk than short-term
bonds?
Please illustrate your point by comparing the price change of
two bonds of 1yr and 10yr maturity respectively due to interest
rate changes. Assume both bonds have $1000 par and $100 annual
coupon payment. show work
Use the bond market equilibrium to graphically show what will
happen to the bond interest rate if the citizens in a country
suddenly becomes wealthy because of discovering a new gold mine.
Explain in details.