1. A dynamic AD-AS model is based on the fact that Long Run Aggregate Supply expands or contracts over time. So, if the Aggregate Demand does not keep up, or exceeds the expansion in supply, a recession or a boom occurs.

a.Draw AD-SRAS-LRAS diagram to show the economy in equilibrium.

b.Now assume that LRAS curve shifted to the right due to technological improvements, but Aggregate Demand did not kept the pace. Draw the new equilibrium.

c.What are the monetary policy instruments that could be employed to achieve equilibrium.

d. Draw the new equilibrium and show how it was achieved.e.What are the fiscal policy instruments that could be employed to achieve equilibrium.f.Draw the new equilibrium and show how it was achieved.

Give 3 reasons for deviations from Interest Rate Parity. Do these deviations indicate unexploited profit opportunities for investors?

your book lists (macroeconomics 10th edition) 5 sources of economic growth. List these sources of growth and choose one to describe in detail. Include an example of the source that you selected, as well as a brief description of how adding to that source year would lead to greater output in the future.

What is meant by the balance of savings and investment? Do you think the government should try to balance the budget in the short-run or the long-run? Discuss what is meant by sustainability of fiscal policy.

4. you are trying to develop a strategy for investing in two different stocks. The anticipated annual return for a $1,000 investment in each stock under four different economic conditions has the following probability distribution:

a. Expected return for stock X and for stock Y.

b. Standard deviation for stock X and for stock Y.

c. Covariance of stock X and stock Y.

d. Would you invest in stock X or stock Y? Explain

The California Department of Agriculture (CDFA) has conducted a contingent valuationstudy and determined that vineyards provide an external benefit in the form of environmental amenities (i.e., attractive landscape for tourists) worth $50 million (on average, about $100 per acre of vines) per year. Suppose you are employed to advise thegovernment on policy. What policy would you recommend that the government should adopt with the aim of maximizing total economic welfare in California. Should we subsidize wine production? Please make your answer brief, but indicate specifically how the policy would be implemented. In addition, please discuss briefly any possible side effects of your recommended policy.

A business owner must purchase a new piece of equipment for his manufacturing process. He has narrowed it down between two options that both have a useful life of 9 years. Option A has an initial cost of $18,000, will provide the company with $3000 a year in profit, and has a salvage value of $1000. Option B has no salvage value and is more expensive with an initial cost $26,000 but it will provide the company with $4200 a year in profit. The business owner has a savings account that earns 7% a year in interest (i.e. MARR=7%). Determine the Incremental Rate of Return. Round to the nearest whole number.

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Which option should he choose?

Explain the steps of how a bill becomes a law.

Where does legislation begin?

What are the many steps through Congress and where does the bill end up?  

3. Discuss international capital movements. In particular:

1. State the difference between portfolio investments and direct investments.
2. List the main determinants of both types of capital movements.
3. Argue about the role of risk diversification in explaining “two-way” capital flows.

1. Suppose that Nation 1 can import good X from Nation 2 at a price P₁=1.20 or from Nation 3 at a price P₂=1.50. If the domestic demand and supply curves are given by the following equations:

Demand: P=80-2Q            Supply: P=5+3Q

1. Under free trade, how many units of good X are consumed? How many units of good X are produced domestically? How many units of good X are imported? From which Nation?
2. If a 30% import tariff is imposed, how many units of good X are consumed? How many units of good X are produced domestically? How many units of good X are imported? From which Nation?

Now, suppose that Nation 1 agrees about a custom union with Nation 3 only (that is, trade is free between Nation 1 and Nation 3, while a 30% import tariff is still in place between Nation 1 and Nation 2).

3. How many units of good X are consumed? How many units of good X are produced domestically? How many units of good X are imported? From which Nation?
4. What is the welfare change due to the custom union?

We discussed four types of market failures in class. List two types of market failures, give an example of market or type of product for which this failure is likely to exist, give an example of a solution, and state whether it is an incentive compatible approach or a command-and-control approach.