Question

1. What is KVV’s prediction of the effects of Covid on bond prices?

A. In the medium-long run bond prices and bond yields will fall because investors will shift from bonds to stocks.

B. In the medium-long run bond prices will increase and yields fall because investors will shift from stocks to bonds.

C. In the medium-long run bond prices and bond yields will increase because investors will shift from stocks to bonds.

D. In the medium-long run bond prices will fall and yields increase because investors will shift from stocks to bonds.

2. Consider the increase in bankruptcies due to Covid19. What curve will shift in the Solow diagram?

A. The production function will shift down.

B. The depreciation function will shift up.

C. The Investment curve will shift down.

D. None. But the stock of capital will fall.

3. What is KVV’s prediction of the effects of Covid on stock prices?

A. In the medium-long run the S&P500 will be at a higher value than before the Covid19 crisis.

B. In the medium-long run the S&P500 will be at roughly the same value as before the Covid19 crisis.

C. In the medium-long run the S&P500 will be at a lower value than before the Covid19 crisis.

D. In the medium-long run the S&P500 will grow at the same rate as the depreciation rate.

4. What is an important feature of the KVV model that is missing in the Solow model? Pick from the options below.

A. Capital investment and depreciation.

B. Households save part of their income.

C. Investors are constantly updating their beliefs about the probability risk of investment in capital

D. Output is produced with capital and labor.

5. Which of the following aspects of the Covid crisis will have the less persistent effects i.e. effects that will vanish more quickly?

A. The bankruptcy of companies

B. The scarring investor effect

C. The lockdown

D. The death of many people

6. Consider the scarring effect on investment due to Covid19. What curve will shift in the Solow diagram?

A. None. But the stock of capital will fall.

B. The production function will shift down.

C. The depreciation function will shift up.

D. The Investment curve will shift down.

7. Consider the reduction in productivity due to the lockdown restrictions (which separate labor from capital). What curve will shift in the Solow diagram?

A. The Investment curve will shift down

B. The production function will shift down

C. The depreciation function will shift up

D. The Investment curve will shift up

Answer 1

Answer 1 : option (D) is correct

• KVV’s prediction of the effects of Covid on bond prices are, In the medium-long run bond prices will fall and yields increase because investors will shift from stocks to bonds.If the higher rate of inflation on the horizon then rate of interest and bond yields will increase as the price decrease in a bid to compensate for the loss of the purchasing power of the future cash flows.
• When a bond yields increase the price will fall.

Answer2 : option (C) is correct

• When Considerthe increase in bankruptcies due to Covid19 , saving will fall as result, investment curve will shift down.

Answer3: option (A) is correct

• In the medium-long run the S&P500 will be at a higher value than before the Covid19 crisis. because V shaped recovery due to expansionary fiscal policy and triggering automatic stabilizer which boost investment and customer preference.

Answer4: option (c) is correct

• Investors are constantly updating their beliefs about the probability risk of investment in capital is the important feature of the KVV model that is missing in the Solow model. Because risk of investment is not incorporated in solow model.

Please comment if having any query.
UPVOTE, your help means a lot to me.
I really need your generous support.