Question 5: Iris wants to save money to buy a new sailboat. • In 2010, Iris earns $20,000, and faces a marginal tax rate of 25 percent. • In 2015, Iris will earn $50,000, and face a marginal tax rate of 40 percent. • If she invests money from 2010 to 2015, she will earn interest totaling 50 percent of her initial investment. a. Explain the difference between a registered retirement savings plan (RRSP) and a tax free savings account (TFSA). b. Iris saves $4,000 of her before tax earnings in 2010. If she puts the money into an RRSP, how much can she consume in 2010? If she puts the money into a TFSA? c. How much interest will she earn in the five years from 2010 to 2015? d. In 2015, Iris withdraws the entire amount – principal plus interest – from her savings account. How much tax does she pay on the amount withdrawn from her savings account if it is an RRSP? What if the savings account is a TFSA (how much tax does she pay)? e. Which is the better investment strategy for Iris: putting money into an RRSP or a TFSA? Why?

Mark as true or false and briefly explain the reason

8. Classical measurement error in the dependent variable implies that the OLS estimator of the slope coefficient will be downward biased.
9. One solution to the issue of omitted variable bias is to use the method of two-stage least squares with an instrumental variable that satisfies the instrument relevance condition and the exclusion restriction.
10. Say you want to estimate the effect of schooling on wages using the method of two-stage least squares. Then the instrument exogeneity condition implies that the correlation between the instrumental variable and schooling should be zero.

2) What do we mean by ‘rivalrous in consumption’?

3) Public Goods and Common Resources share one of the above 2 characteristics. Which is it – nonexcludable or rivalrous in consumption?

4) For each of public good & common resource, see if you can answer the following

a. On an INDIVIDUAL level, what is true about the MB (for the individual) vs. the MC for consuming / providing the good. In other words, for a common resource, what is true for an individual when he / she is deciding to consume an additional unit of the resource, in terms of MB vs MC? Also answer for provision of one unit of Public Good

b. Your answer is (a) leads to the following problems that we associate with common resource and public good market failures – overconsumption and Free Riders. Briefly explain.

c. On a SOCIETY / AGGREGATE level, we look at Net Social Benefit (NSB) and Net Social Cost (NSC). If NSB > NSC than it makes rational sense to undertake that action. In the case of common resources, if we use ∑MBi (i.e. the sum of all individuals’ MB) for consuming an additional item of the resource as the NSB (i.e. we are adding up all the additional utility that each consumer gets from the units of the resource that they consume); this is less, by far, than the NSC of allowing everyone free access to the resource. This implies that the NSC of allowing everyone free access cannot be measured by ∑MCi (i.e. the sum of all individuals’ MC). So, what is the NSC of unfettered access? Why do consumers not realize their fair share of the NSC?

d) On a SOCIETY / AGGREGATE level, we look at Net Social Benefit (NSB) and Net Social Cost (NSC). If NSB > NSC than it makes rational sense to undertake that action. In the case of Public Goods, if we use ∑MBi (i.e. the sum of all individuals’ MB) for consuming an additional item of the resource as the NSB (i.e. we are adding up all the additional utility that each consumer gets from the units of the resource that they consume); this is much greater than the NSC of providing this resource. Yet, these goods do not get provided. Is this because consumers are not willing to burden their fair share of the NSC? Discuss

Micky earns $200 this year and will earn $210 next year. The interest rate is 5 percent (r=0.05), whether Micky borrows or saves.

1. Draw his intertemporal budget constraint. Calculate and show on your diagram the horizontal intercept and the vertical intercept.
2. Suppose Micky saves $100 this year so that he can consume more next year. Show his consumption choice on your diagram. How much does he consume this year and next?
3. Now suppose the government introduces a 40 percent tax on investment income, but allows any interest payments to be tax deductible (even interest payments on consumer debt). Show the effect of taxing investment income on Micky’s budget constraint.
4. Now try to draw a more realistic scenario: if Micky borrows money on his credit card, he pays an interest rate of 20 percent, and interest payments are not tax deductible. Micky pays no tax on his interest income for the first $40 he saves. Only for savings above $40 does he start to pay tax at 40 percent. Show his new budget constraint.

1. what is a bank failure?

2. how do you prevent bank failure

3. what causes bank failure?

A war breaks out that is widely expected to last only one year. Show how the effect of this shock on aggregate output depends on the size of the intertemporal substitution effect of the real interest rate on current leisure, and carefully explain your results.

=How would David Harvey, drawing on Marx, explain the history of capitalism in terms of the spatial fix? Be sure to use appropriate Marxian terminology. How might you critique this history of capitalism by taking a more intersectional approach?

1. Barter system

a) the exchange of one good or service for another good or service.

b) coins, paper money and demand deposits in chartered banks.

c) can be converted quickly into case.

d) provides the lifeblood of the circular flow of income and expenditure.

Q. 1 The monetary base is the sum of

A. U.S Treasury notes and other government securities

B. currency and checkable deposits at depository institutions

C. foreign and domestic deposits at the Fed

D. currency and reserves of depository institutions

Q.2____________ of unemployment during _______________make it easier for workers to _____________wages

A. Low levels; an expansion; negotiate higher

B. Low levels; a recession; accept lower

C. High levels; an expansion; accept lower

D. High levels; a recession; negotiate higher

Q.3 How does an open market operation change the monetary base>

A. increases the quantity of currency, which increases; decreases the quantity of currency, which decreases

B. increases; has no effect on

C. increases; decreases

D. decreases; increases

Q.4 The sale of government securities by the Fed leads to

A. a decrease in bank reserves

B. a contraction in bank lending

C. a decrease in the monetary base

D. All of the above answers are correct

Q.5 The required reserve ratio

A. increases when withdrawals from a bank are made

B. is the amount of money that banks require borrowers to reserve in their account

C. is higher for banks that make riskier loans

D. is the fraction of a bank's total deposits that is required to be held in reserves

Q.5 The gap between ________ is the output gap.When ________, the output gap is called an inflationary gap.

A. real GDP and potential GDP; real GDP exceeds potential GDP

B. the interest rate and the price levels; real GDP exceeds potential GDP

C. the price level and the cost; real GDP equals the interest rate

D. real GDP and aggregate demand; real GDP equals potential GDP

Q.6 By itself, a supply shock such as an increase in the price of oil, will

A. cause real GDP to permanently decrease year after year

B. be inflationary as long as there is no policy response

C. not cause inflation if there is no policy response

D. cause a wage- price spiral

is econ a necessary part of life and if so, then why?

Wha happens to the global competitiveness landscape when automation reduces the labor cost?

Suppose that the USD has been significantly appreciating against the Japanese yen over the last several months and that the Federal Reserve is considering sterilized direct intervention to reverse this trend. What sterilized intervention steps would the Fed take to reverse the recent USD appreciation? That is, clearly and explicitly state the exact steps taken (and the timing of steps: Are the steps taken sequentially? Or are they taken at the same time?) to engage in the necessary sterilized direct intervention. Be sure to clearly specify which currencies are being exchanged and what government securities are being bought and sold (and by whom) – the details are important.

Is economics important for STEM occupations?

1) Consider a small country whose actions does not affect the world interest rate. Draw a loanable funds market for the country and analyze how Net Export and Net Capital Outflow changes when the following happens. Draw different graphs for each case.

a) The country’s government implements a policy to lower income taxes while keeping the government budget unaffected

b) The US (a powerhouse in the World market) implements a contractionary monetary policy to raise interest rate