Questions
2. (1 point) (Mankiw) Explain why each of the following statements is true. Discuss the impact...

2. (1 point) (Mankiw) Explain why each of the following statements is true. Discuss the impact of monetary and fiscal policy in each of these special cases.

a. If investment does not depend on the interest rate, the IS curve is vertical.

b. If money demand does not depend on the interest rate, the LM curve is vertical.

c. If money demand is extremely sensitive to the interest rate, the LM curve is horizontal.

In: Economics

Consider a competitive industry that the government taxes in order to raise revenue (e.g., the sale...

Consider a competitive industry that the government taxes in order to raise revenue (e.g., the sale of alcoholic beverages). Show graphically that the amount of revenue generated by a per-unit tax on the industry can in principle be duplicated by reorganizing it as a state-run monopoly and using the profits as government revenue.

In: Economics

explain the accelerator model of inventories

explain the accelerator model of inventories

In: Economics

Explain the roles and importance of data collection and forecasting in monetary policy. Why is accuracy...

Explain the roles and importance of data collection and forecasting in monetary policy.

Why is accuracy in forecasting so important?

Evaluate the appropriateness of the current monetary policy and explain how policy has impacted economic conditions.

In: Economics

explain the relationship between the proce elasticity of demand and total revenue. what are the impacts...

explain the relationship between the proce elasticity of demand and total revenue. what are the impacts of various forms of elasticities (elastic, inelastic, unit elastic, etc.) on business decisions and atrategies to maximaize profit? explain your reaponses using empirical examples, formulas and graphs.

In: Economics

The average wage depends on ability and years of education (S) as follows: W = $50,000...

The average wage depends on ability and years of education (S) as follows:

W = $50,000 + $5,000S for more able individuals W = $30,000 + $5,000S for less able individuals

In addition, S=10 for more able individuals and S=5 for less able individuals.

a) Do employers discriminate based on the years of education? b) Based on the observed difference in the average wage between more and less able individuals, what is the implied return per year of education? How is this different from the actual return per year of education? c) What is an instrumental variable? Explain how using an instrumental variable can help you identify the actual return per year of education even if you can’t observe the ability of individuals.

In: Economics

Complete the table and answer the following questions. The price of this perfectly competitive firm is...

Complete the table and answer the following questions. The price of this perfectly competitive firm is $300.

QTY

FC

VC

TC

AFC

AVC

ATC

MC

MR

0

700

1

650

2

700

3

760

4

840

5

950

6

1090

7

1270

8

1500

9

1790

10

2150
  1. Should this firm produce? Explain
  2. If so, how many units should it produce?
  3. What is the economic profit or economic loss?

In: Economics

Background In this hypothetical scenario, you are the Chief Executive Officer (CEO), of a company, Island...

Background

In this hypothetical scenario, you are the Chief Executive Officer (CEO), of a company, Island Ports Limited. Your business, is a global business, with shipping ports in all of the major English speaking Caribbean countries. On January 7, 2020, you signed a Heads of Agreement with the Government of The Bahamas to invest $120 million during Phase I to develop a cruise port on the island of New Providence. As you can appreciate, the signing and the commitment of your shareholders to this project, preceded any information available to your company and its shareholders with respect to the potential impact of the coronavirus, i.e. COVID-19.

Concessions granted to Island Ports (hypothetical scenario)

The following were the concessions granted to Island Ports during the signing of the Heads of Agreement:

i. A twenty (20) year tax holidays in relation to the payment of any real property tax for this project. Island Ports, Chief Financial Officer, has estimated that the tax forgiveness by the Government of The Bahamas is equivalent to $1.01 million annually.

ii. A ten (10) year tax waiver on the payment of Value Added Tax on all goods imported for the construction of the port and goods sold to the public, once the port is operational. The CFO estimates that the gain to Island Ports as a result of this tax concession, is conservatively estimated at $5.4 million annually.

iii. A ten (10) year waiver of import duties on all inputs needed in the construction of the port. The CFO has estimated that this import tax waiver amounts to an average of $2 million over the next ten (10) years.

iv. A land grant of ten (10) acres for the construction of the port. This is land that is owned by the Government of TheBahamas and will be given to Island Ports for a nominal price of $10. The land has a market value of $15.5 million.

Commitments from Island Ports to the Government and People of The Bahamas

In light of the concessions granted to Island Ports as listed above, the company has committed the following to the Government and people of The Bahamas:

i. Five hundred (500) direct jobs during the Phase I construction of the port. During the initial signing of the Heads of Agreement, in January, 2020, there was a commitment for the construction to start September, 2020, with the first phase completed May, 2021.

ii. Phase I of the project is estimated to cost $60 million. The entire sum, i.e. $60 million needed for the construction of this phase, will be sourced from external investors. These investors had pledged the financing prior to the COVID-19 pandemic.

iii. Some local ownership by offering shares to the general public. The public is expected to have a 40% stake in the project. It is estimated that this 40% stake will provide a net benefit to the domestic economy of $40 million over the next 5-7 years.

iv. By way of the added economic activity created as a result of Island Ports, the government is expected to get an added $15 million in revenues in head tax revenues from cruise passengers to the new port. This additional $15 million in revenues is predicated on the port being operational August 1, 2021, which means that construction must begin September, 2020.

The following is the outlook for The Bahamas, based on baseline data (as at 2019) taken from the Central Bank Quarterly Digest at www.centralbankbahamas.com and projections for 2020 based on these baseline numbers:

Table I: Key Metrics for The Bahamas

Key Metrics

As at 2019 (Pre COVID-19)

Impact – Projected 2020

National Debt as at December, 2019 ($mils.)

$8,749

$10,413

Debt in Foreign Currency ($mils.)

$2,618

$4,282

Foreign Reserves as at Feb., 2020 ($mils.)

$2,001

$900

Gross Domestic Product (2019) ($mils.)

$12,900

$10,900

National Debt as % of GDP

67.8%

95.5%

Tourism Expenditure as at 2019 ($mils.)*

$2,817

$1,665

Unemployment as at November, 2019

11.0%

24.8%

Government GFS Deficit ($mils.)

($377.6)

($1,664)
• The tourism expenditure of $1.665 billion does not take into account seasonal adjustments/variations, which may result in even a lower level of receipts from tourism.

You have just been appointed the Chief Operating Officer (COO) of Island Ports. You have over twenty years experienceadvising CEO’s on strategic decisions. In addition to your experience as an advisor on strategy, you are accomplished academically. You were a graduate of the University of TheBahamas and later pursued your Masters at Yale in Analytics and Strategy. Needless to say, there is high expectations from your office, in helping the company, Island Ports on the way forward.

Decision

Island Ports has to decide as to whether it wishes to move forward in September, 2020, with the start of construction of Phase I of the construction of the cruise port in New Providence. Island Ports investors are also reluctant to move forward in the current environment. The Government of The Bahamas is also applying pressure to Island Ports to get started with its construction, as this project will provide much needed jobs for the economy, at a time when jobs and incomes are really needed. The government has also reminded Island Ports of the generous concessions that were granted on the condition that the project gets started on time. While the Government of The Bahamas is applying pressure to Island Ports, the company has reminded the government that its project will provide tremendous benefits to the country, through its efforts and ingenuity.

As the COO, you are asked to advise the company on the way forward by way of answering the following questions:

i. Should Island Ports move forward with the construction of the cruise port with effect from September, 2020. What is the rationale that would support such a move? What is the rationale for not moving ahead?

ii. The company is also interested in knowing, from the perspective of the government, how can the company be persuaded that it should move with the construction at this time? In other words, assume that Island Ports is reluctant to move forward, what would be factors that would force Island Ports to move ahead with construction in this environment?

iii. In light of the metrics and the information provided in this scenario, what is the impact for the domestic economy; and for the company in moving forward with this project?

iv. What are your recommendations from the perspective of (a) Island Ports; and (b) the Government of The Bahamas in relation to whether the project should move forward.

v. Any other thoughts.

APPENDIX

Key Metrics – The Bahamas

Assumptions and other notes:

• A key assumption is that there will be some semblance of normalcy, circa August, 2020. The length of time and the depth, i.e. sectors impacted are all factors that could impact the metrics.

• During the period of the Financial Crisis, i.e. Great Recession, the unemployment statistics in The Bahamas ranged from around 12% to a height of 16.8% in 2011. This Pandemic, i.e. COVID-19 is expected to be more severe when compared to the Great Recession of 2008, which was concentrated primarily within the area of Financial Services/Financial Markets, COVID-19 is much broader in scope affecting all sectors/markets. The projected rate is 24.8%. This is conservative, considering that at the height of this crisis, the U.S. is projecting 32% , as a result of COVID-19, ending at about 12% by year end 2020, based on recovery starting third quarter.

• The projected increase in the national debt, reflects the existing debt stock of $8.749 billion and the projected GFS deficit of $1.664 billion. The increase in foreign currency borrowing, reflects that new borrowings will come exclusively from outside rather than internal borrowings in B$.

• It is conceivable that the impact to GDP depending on the length of the shut-down, some estimates are on the high end of closer to $2.8 billion of the GDP impact. I have looked at a more conservative estimates of $2 billion.

• The foreign reserves from most estimates, is expected to be reduced to about $900 million to the end of 2020. This reflects reduced receipts from tourism. Also, the fourth quarter there is usually a run of the reserves for Christmas shopping, even in an economy in recession, there will be draw downs.

• In calculating the GFS (based on Government Finance Statistics, IMF defined basis of calculating deficits), the government’s deficit of $1.064 billion, is based on tourism share of the economy of 65% (most estimates are closer to 70%, conservative estimate) and government’s share of the economy of circa 20%. Based on calculations, the loss by way of tourism expenditure based on arguably a return to some semblance of normalcy in August, 2020 is $1.152 billion. Using a factor of 2.98, equivalent to a proxy of a multiplier, considering that tourism with direct and indirect effects, government’s GFS fiscal deficit will widen from the 2019/20 projection of $377 million to $1.064 billion. The $1.064 billion is just the deficit attributed to the decline in economic activity, taking into account the $600 million thereabouts of subsidies to individuals and businesses, the GFS deficit is closer to $1.664 billion.

Table I: Key Metrics

Key Metrics

As at 2019 (Pre COVID-19)

Impact – Projected 2020

National Debt as at December, 2019 ($mils.)

$8,749

$10,413

Debt in Foreign Currency ($mils.)

$2,618

$4,282

Foreign Reserves as at Feb., 2020 ($mils.)

$2,001

$900

Gross Domestic Product (2019) ($mils.)

$12,900

$10,900

National Debt as % of GDP

67.8%

95.5%

Tourism Expenditure as at 2019 ($mils.)*

$2,817

$1,665

Unemployment as at November, 2019

11.0%

24.8%

Government GFS Deficit ($mils.)

($377.6)

($1,664)

The tourism expenditure of $1.665 billion does not take into account seasonal adjustments/variations, which may result in even a lower level of receipts from tourism.

In: Economics

I need some assistance with my 2000 word essay I am writing about COVID-19 and how...

I need some assistance with my 2000 word essay I am writing about COVID-19 and how it is affecting and affected the business industry around the world. Thank you.

In: Economics

A real estate investor buys two properties. Monthly net income from the first property (an apartment...

A real estate investor buys two properties. Monthly net income from the first property (an apartment building) is $1,000 times the number of apartments that are rented out, minus $1,800 in property taxes and maintenance expenses. The number of apartments that are rented out is a random variable, X, with mean 20 and standard deviation 3. Monthly net income from the second property (a parking lot) is ninety percent of revenue (the management company takes the other ten percent), minus $1,200 in property taxes and maintenance. Revenue is a random variable, Y, with mean $20,000 and standard deviation $200. The correlation between the number of apartments rented out (X) and revenue from the parking lot (Y) is 0.4.

a. Calculate the real estate investor’s expected monthly net income from these two properties:

b. Compute the covariance from the correlation:

c. Calculate the variance of monthly net income from these two properties

In: Economics

The tables below describe the employment and price level situation for the country of Gatoria over...

The tables below describe the employment and price level situation for the country of Gatoria over the past four years. Fill out the tables and use them to answer the following questions about how policymakers and politicians in the country might respond such a situation.

Year

# Unemployed (in millions)

# Employed (in millions)

Unemployment Rate

2015

16

210

2016

22

205

2017

20

195

2018

18

200

What has been happening to the unemployment rate since 2015? Use the AS-AD model to illustrate what has happened to the economy since 2015. Assume the economy was at full employment in 2015. From this initial condition, drawa new aggregate demand curve to show how the economy has changed. Describehow the new equilibrium is different from the old one both in terms of price leveland outputlevel.

In: Economics

Over short periods of time, Group of answer choices there is a nearly perfect positive, linear...

Over short periods of time,

Group of answer choices

there is a nearly perfect positive, linear relationship between money growth and inflation.

there is no predictable relationship between money growth and inflation.

there is a nearly perfect negative, linear relationship between money growth and inflation.

In: Economics

Is the US national debt cause for concern? I need some of the negative implications that...

Is the US national debt cause for concern? I need some of the negative implications that come from the increasing national debt. Please explain.

In: Economics

Consider an economy that abides by a standard Mundell-Fleming model with perfectly sticky prices, imperfect capital...

Consider an economy that abides by a standard Mundell-Fleming model with perfectly sticky prices, imperfect capital mobility, and flexible exchange rates. Suppose the foreign economy lowers its interest rate (assume this shock first manifests in the IS/LM/BoP space).

1. Consider the initial reaction of the shock. Which is true?

A. IS curve shifts left due to the change in the foreign interest rate.

B. IS curve doesn’t change since the foreign interest rate isn’t part of the IS curve.

C. IS curve shifts right due to the change in the foreign interest rate

D. The IS curve becomes steeper, but the shift direction is ambiguous

2. Consider the initial reaction of the shock. Which is true?

A. BoP doesn’t change due to perfect capital mobility.

B. BoP shifts up because domestic rates are higher than foreign rates

C. BoP shifts down, reflecting the lower foreign interest rates

D. The BoP becomes steeper, reflecting greater international interest rate differentials

3. The initial reaction in the IS/LM/BoP space generates

A. BoP surplus

B. BoP deficit

C. BoP balance

D. The result is ambiguous

4. The foreign exchange market will react in the following way

A. The Supply of FX rises due to higher domestic output

B. The Demand for FX falls due to the stronger domestic output

C. The Demand for FX rises due to the relatively higher domestic interest rate

D. The Demand for FX falls due to the relatively higher domestic interest rate Page 3

5. What is the impact on the USD?

A. Dollar strengthens

B. Dollar weakens

C. Dollar remains unchanged

D. The impact is ambiguous

6. In response to the change in the US$, the IS/LM/BoP system will equilibrate in what manner?

A. Only the LM curve will shift right

B. Only the IS curve will shift left

C. The IS curve shifts shifts left and the BoP shift Up slightly

D. Only the BoP shifts up

In: Economics

7. What is total utility and marginal utility? How do they affect the real world? Give...

7. What is total utility and marginal utility? How do they affect the real world? Give example.

In: Economics

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