What are the three main categories of analytics? Briefly describe a possible analytics application from each category in the retail value chain.

5) Philips curve and monetary policy

a) Show on a graph how short-run and long-run Philips curve relates to the ASAD model. How a shock to the aggregate supply can affect the Phillips curve? (11.3 marks)

b) Discuss Friedman’s idea of the long-run versus short-run Phillips curve by including the idea of natural unemployment rate and the role of expected inflation. What is the sacrifice ratio?

c) Explain the idea of rational expectations, inflation targeting, and the Taylor rule.

d) Briefly discuss the set-up and the rational of the Barro-Gordon model for the time inconsistency problem of monetary policy. Do not solve for the game, just explain.

QUESTION

a. Explore the Web for the latest World Internet Users Population Stats for 2019 comparing at least 4 world regions (for example: Africa, Asia, Europe, Middle East) in terms of Internet users distribution % and penetration rate (% population).

b. Apply Porter’s Five Forces analytical framework to the Internet. Your answer should include critical elements supported with evidence/ justification.

1 unit of Currency A costs 1.47 units of Currency B, 1 unit of Currency B costs 0.68 units of Currency C, and 1 unit of Currency C costs 1.03 units of Currency A. Assume that you are starting out with 1,000,000 units of Currency A and that there are no transaction costs. How much money will you make in one set of triangular arbitrage transactions? Round to the nearest unit of Currency A.

3) Aggregate supply, Aggregate Demand (Use graphs for all your answers)

a) Derive the AD curve from the IS-LM model.

b) Discuss what affects the slope of the short-run AS and how. Page 3 of 3

c) In the AS-AD model how does a tax cut affect the natural rate of output, the output level, and the level of prices? (Explain both cases of a long-run and a short-run AS curve).

d) Discuss the notion of the crowding-out of private investment when the government decides to conduct expansionary fiscal policy. (8.3 marks)

Labor Standards and Trade – should international trade policy also include an attempt to impose (US or European) labor standards on other, poorer countries (for example, concerning age, working conditions, number of hours worked per day, etc)? If so, whose standards should be used? Should there be any restrictions on trade in goods produced by prison, or slave, labor? What are the economic implications of doing so?

A local restaurant giving a 10% discount to college students is an example of:

Graph an economy where your actual output is above full employment output. Use the AD/SRAS and LRAS model. Label all axis and lines accurately. a. Identify your potential or full employment output, Yf or Qf. b. Identify the actual output and price level. c. Identify the phase of the business cycle, the economy is operating within and explain how you know. d. Actual output= $750 Million Potential output =$ 600 Million MPC= .5 i. Calculate MPS. (write the formula and show all work) ii. Calculate the Spending Multiplier (write the formula and show all work) iii. Calculate the Tax Multiplier (write the formula and show all work) iv. Identify the type of Fiscal Policy to fix this economic problem. v. Calculate the maximum change to government spending, if this were the only tool utilized. (write the formula and show all work) What direction is the change? vi. Calculate the maximum change to taxes, if this were the only tool utilized. (write the formula and show all work) What direction is the change? vii. Explain how the graph changes. What shifts, what happens to output, unemployment and price level, in the short run? 2. Based off your understanding of automatic stabilizers and the above economic problem. a. Draw a graph of the Government spending and Tax revenue model. i. Label the balanced budget point with the same value as the full employment output above. ii. Label a point on the graph to show what happens when the actual output is below the full employment output. iii. State if the budget is balanced, in a deficit or in a surplus. Explain. iv. Based off the policy in d (v), explain the effect on the budget. 3. Draw the Loanable funds market in equilibrium and label the axis and curves accurately. a. Due to your answer in 2a (iv) explain how the market changes. i. Why does the market change? ii. What shifts and in which direction” iii. What happens to the real interest rate? iv. Based off the interest rate change, how will gross private investment change?

If people voluntarily contribute towards funding a public good, do you think there would be over or under-provision of the public good? Why?

What is the policy ‘remedy’ for each inflation: Demand-pull and Cost-push

Davy Metal Company produces brass fittings.  Davy's engineers estimate the production function represented below as relevant for their long-run capital-labor decisions.

Q=500L^0.6K^0.8

where Q = annual output measured in pounds,

L = labor measured in person-hours,

K = capital measured in machine hours.

The marginal products of labor and capital are:

MP_L=300L^-0.4K^0.8 , MP_K=400L^0.6K^-0.2

Davy's employees are relatively highly skilled and earn $15 per hour. The firm estimates a rental charge of $50 per hour on capital.  Davy forecasts annual costs of $500,000 per year, measured in real dollars.

1. Construct the isocost equation.
2. Draw isocost lines when budgets are  $500,000 and $600,000. (Y-Axis is Capital and X-Axis is Labor)
3. Determine the firm's optimal capital-labor ratio (K/L), given the information above.
4. How much capital and labor should the firm employ, given the $500,000 budget?  
5. Calculate the firm's output.
6. Davy is currently negotiating with a newly organized union.  The firm's personnel manager indicates that the wage may rise to $22.50 under the proposed union contract. 1)  Analyze the effect of the higher union wage on the optimal capital-labor ratio and the firm's employment of capital and labor. 2) What will happen to the firm's output?

A firm’s production function is given by q = 40 ln(EW + EB + 1) where EW and EB are the number of whites and blacks employed by the firm, respectively. From this it can be shown that the marginal product of labor is MPE = 40 / (EW + EB + 1). Suppose the market wage for blacks is $50, the market wage for whites is $100, and the price of each unit of output is $20.

(a) How many workers of each race would a non-discriminating firm hire? How much profit is earned if there are no other costs?

(b) How many workers of each race would a firm with a discrimination coefficient of 0.6 against black workers hire? How much profit is earned if there are no other costs?

(c) How many workers of each race would a firm with a discrimination coefficient of 1.2 against black workers hire? How much profit is earned if there are no other costs?