Suppose the government sets an effective price floor (that is, a price above equilibrium) in the market for oranges and agrees to buy all oranges that go unsold at that price. The oranges purchased by the government are discarded. Illustrate the number of oranges purchased by the government. Illustrate the gains and losses to all relevant groups of Americans and the deadweight loss.

Government is considering building a public park in a small town ìBelleî. The cost of building this park is 120. There are three people in this town, Arnold, Ben, and Carrol. Each personís valuation of the park is 20, 30, and 80 respectively. But, government does not know these valuations.

(a) The government decides whether to build this park by majority voting. If majority supports building the park, then cost will be equally shared. What will be the outcome of majority voting?

(b) Government suggests that the cost of building the park will be financed through the government revenue in other towns. But government will only take this project when the benefit is higher than the cost. Government want survey these three to know the benefit of the park. Do you think this is the right plan to get the benefit of the park? Explain why or why not.

(c) Government suggests another plan. Government will survey these three to get the valuation of the park. If the sum of benefit is greater than the cost, cost will proportionately shared among three according to the reported valuation. For example, the reported valuation is 50, 60, and 70, then each cost share will be 50/(50+60+70), 60/(50+60+70), and 70/(50+60+70). Do you think this is the right plan to get the true valuation? Explain why or why not.

Explain how the optimal combination of work and consumption changes after a decline in the wage rate. (It would be helpful for you to practice graphing this in the consumer’s problem)

Use the “Golden Rules of probability distributions” to prove that all coordination games have a mixed strategy Nash equilibrium.

1. Explain what information is embedded into the yield curve. How can we use it to learn market-level expectations for the short-term interest rates?

The neo-classical growth model emphasizes two determinants of intensive growth (ie. growth in output per person).  Write a concise essay in which you explain the operation of the neo-classical growth model and the role played by the two key determinants of growth within the model.

A firm uses skilled labor, unskilled labor, and capital, and is initially in equilibrium. Suppose that the wage paid to unskilled labor falls, and that unskilled labor is a substitute in production with both skilled labor and capital. Depict in separate graphs of (a) capital and unskilled labor and (b) capital and skilled labor how the original equilibrium choices change in response to the decline in wages paid to unskilled workers. What are the expected impacts on the wage and employment level for each group of worker, and why? How does this factor into the growth of inequality in recent decades in the United States?

1. Mike and Suzanne have a daughter (Michelle) and a son (Jack). Michelle is 25 years old, working in a law firm. Jack is only 18 years old. Next year, Jack will start at the University of Adelaide as a student. As a family tradition, they have been doing lottery syndicate for years. They collect money and pay together, using their birthday numbers to play in the lottery. One day, Jack bought one lottery ticket, and later on, surprisingly found out he won 1 million Dollar. Now Jack wants to take all money for himself and leave his parents’ house to start a new life. Do you think Jack can do so? Would Mike, Suzanne and Michelle have any claim in this lotter? (10 points)

3.

4.

5 Three Pirates Sharing 100 Gold Coins

Three pirates of different ages have a treasure of 100 gold coins. They decide to split the coins using this scheme:

• The oldest pirate proposes how to share the coins, and ALL pirates (including the oldest) vote for or against it.

  • – If more than 50% (exclusive) of the pirates vote for it, then the coins will be shared that way and the game ends. Otherwise, the pirate proposing the scheme will be thrown overboard, and the process is repeated with the pirates that remain. Note that if exactly 50% of the pirates vote for it, then the pirate proposing the scheme will be thrown overboard.

  • – As pirates tend to be a bloodthirsty bunch. If a pirate would get the same number of coins if he voted for or against a proposal, he will vote against so that the pirate who proposed the plan will be thrown overboard.

• Assuming that all 3 pirates are intelligent, rational, greedy, and do not wish to die, (and are rather good at math for pirates).

1. What will happen?

2. Assume now Captain Hook spots the scene and wants to share the gold as well. That is, now we have four pirates sharing the coins. Captain Hook will be the first to propose a scheme to share the coins. Assume the same rule applies. What will happen?

The medium-run equilibrium is characterized by four conditions:

- Output is equal to potential output (Y=Y_n)

- The unemployment rate is equal to the natural unemployment rate (u=u_n)

- The real policy interest rate is equal to the "natural" rate of interest (the one that makes aggregate demand equal to potential output).

- The expected rate of inflation is equal to the actual rate of inflation.

(a) Assume that the level of expected inflation is formed in such a way that this year's expected inflation is equal to last year's inflation: πe=πt−1πe=πt−1. What is the behavior of the rate of inflation in a medium-run equilibrium?

Select one:

a. it will not change, meaning that the price level remains constant year after year.

b. it will be constant and equal to an exogenous constant, that does not depend on past inflation.

c. it will be increasing or decreasing depending on the value of the natural interest rate.

d. it will not change: the value of inflation is simply equal to its value in the previous period.

(b) Now assume, instead, that the level of expected inflation is equal to an exogenous constant:

πe=π¯πe=π¯

What is the behavior of actual inflation in the medium-run equilibrium?

Select one:

a. it is increasing or decreasing, depending on the value of the "natural" rate of interest

b. It is constant, and equal to its previous period.

c. It is stable and equal to the exogenous constant π¯π¯

d. inflation is increasing at a rate equal to π¯

(c) Imagine that the economy is in a medium-run equilibrium. Assume that expected inflation is equal to past inflation (πe=πt−1πe=πt−1).

In this situation, the Government decides to increase public spending (G), while leaving taxes unchanged. How will macroeconomic variables react to this fiscal expansion?

Select one:

a. output will increase; the unemployment rate and nominal wages will remain the same (equal to the values determined by the WS-PS model); the inflation rate will start increasing year after year.

b. output will decrease; the unemployment rate and nominal wages will remain the same (equal to the values determined by the WS-PS model); the inflation rate will start decreasing year after year.

c. output will increase; the unemployment rate will decrease; nominal wages will remain the same; the inflation rate will start increasing year after year.

d. output will increase; the unemployment rate will decrease; the growth rate of nominal wages and the inflation rate will start increasing year after year.

(d) How must the Central Bank react to the increase in G, in order to ensure that the economy sticks to the medium-run equilibrium?

Select one:

a. it must increase the interest rate.

b. it must decrease the interest rate.

c. it must ensure that the interest rate remains unchanged.

d. it must do nothing: output is already equal to potential output.

e. it must increase taxes.

Describe how congestion taxes have been implemented in different cities.

Which regions of the U.S. have been affected the most by the recession? What are the main reasons for their economic downfall? What is the poverty rate in America? Which groups of the population have been affected the most? Which regions?

How does the U.S. compare with the rest of the rich countries in the world in terms of poverty rates and middle-class income?

b)Social
c)Technological
d)Market
e)None. All of the above are major kinds of globalization drivers

a)existed before the time of Christ.
c)B and D.
d)was influenced by the rise of the Ottoman Empire.

b)more liberal
c)harsher
d)more confronting
e)A and C

b)if they are going to work in a firm with no foreign operations.
c)Neither A nor B because they can learn on the job.
d)Both A and B.

8.International business differs from domestic business in that a firm operating across borders must deal with

b)C and D.
c)the foreign environment.
d)the international environment.
e)the domestic environment.

b)international business.
c)the Pacific Rim.
d)foreign exchange.