Carolyn Shaw is 27. - She works as an accountant for an oil company. - Her salary next year will be $80,000. - She expects to receive a 5 percent raise each year until she retires at age of 65. - Carolyn is considering a return to school to pursue an MBA degree. - She expects the cost of books, tuition, and fees to be $70,000 the first year and $72,000 the second. - These costs are paid at the beginning of the year (as you surely know). - She will not work while in school. - Graduates of the school Carolyn is considering receive starting salaries that average $130,000. - Raises average 7 percent per year. - Carolyn considers the opportunity costs to be 12 percent. a)Determine the present value of Carolyn’s lifetime earnings if she does not return to school. b)Determine the present value of Carolyn’s lifetime earnings with an MBA degree. Remember, she won’t start her job for two years. c) What is the NPV of an MBA degree given Carolyn Shaw's assumptions?

Pick any 2 questions and answer it ( answers should be half page long per question):

1.Bill Gates is a founder of Microsoft and the world's richest individual. Suppose Microsoft sells more software and Mr. Gates acquires another billion dollars in wealth. Simultaneously, suppose a burglar whose income is well below average broke into Bill Gates' house and stole a million dollars worth of antiques. Using the "it's not fair if the rules aren't fair" approach to fairness, is Mr. Gates' acquisition of additional wealth fair? Is the (poor) thief's acquisition fair?

2. What is your opinion on price ceilings in the market for gasoline? Price ceilings were last imposed in the 1970s: To help ration gasoline, drivers were allowed to buy gasoline only on certain days. If the car had an even numbered license plate, the driver could buy on even numbered days and vice versa for cars with odd numbered license plates. (On the 31st of a month, anyone could buy gasoline.) But gas stations sold gasoline for only a limited number of hours per day and it typically took 60 minutes to get gasoline. The station would indicate it was selling gasoline by hoisting a green flag; when it stopped selling that day, the station showed a red flag.

3. Healthy economy caused a positive relationship between wages and employment. Explain.

4. Widely scapegoated by the general public and our elected officials as the greedy profiteers responsible for the recent economic collapse, high-income corporate executives have been made potential targets for federally mandated compensation limits. Do you believe that companies should be allowed to determine how much to pay their workers, or if the federal government should get to decide?

5. The level of income over which people pay no tax has been rising over the last decade, so nowadays many people’s incomes fall below the level at which the income tax is imposed. In fact, after deductions, exemptions, and credits about 47 percent of all tax filers in the U.S. actually pay zero (or even negative) income taxes, whereas the top 1 percent of taxpayers pay about 40 percent of all the income taxes and the top 10 percent pay about 70 percent. Do you think this trend is fair or unfair? What do you predict will happen if the trend continues?

6. During 2007, as oil and gas prices continued to increase, a growing number of Americans called for the United States to become less reliant on Middle-Eastern oil. Would it make sense for the United States to try to become totally self-reliant in the production of oil? Why or why not?

Freddy and Frieda Finance are looking to buy a house. They find a house that they like costing $400,000 and have a $100,000 as a down payment meaning they will need a mortgage loan of $300,000 if they pay their closing costs in cash. Help them evaluate some mortgage options.

1. Nautical Bank offers a 30-year fixed rate mortgage with a nominal annual rate of 3.125%. What would be the Finances’ monthly payment under this loan?

2. Construct an amortization schedule for the 30-year Nautical Bank loan in #1 (see section 5-18 of the textbook). What will be the Finance’s loan balance after 7 years of payments (after payment 84)?

3. Bank of United States offers a 15-year fixed rate mortgage with a nominal annual rate of 2.5%. What would be the Finance’s monthly payment under this loan?

4. Construct an amortization schedule for the 15-year Bank of United States loan in #3 (see section 5-18 of the textbook). What will be the Finance’s loan balance after 7 years of payments (after payment 84)?

Freddy and Frieda Finance are looking to buy a house. They find a house that they like costing $400,000 and have a $100,000 as a down payment meaning they will need a mortgage loan of $300,000 if they pay their closing costs in cash. Help them evaluate some mortgage options.

1. Nautical Bank offers a 30-year fixed rate mortgage with a nominal annual rate of 3.125%. What would be the Finances’ monthly payment under this loan?

2. Construct an amortization schedule for the 30-year Nautical Bank loan in #1 (see section 5-18 of the textbook). What will be the Finance’s loan balance after 7 years of payments (after payment 84)?

3. Bank of United States offers a 15-year fixed rate mortgage with a nominal annual rate of 2.5%. What would be the Finance’s monthly payment under this loan?

4. Construct an amortization schedule for the 15-year Bank of United States loan in #3 (see section 5-18 of the textbook). What will be the Finance’s loan balance after 7 years of payments (after payment 84)?

a) Mario Barnotoli wants to buy designer furniture from Poland for his mansion in Roma, Italy. Current spot rate is PLN 4.2555/EUR and the price for each set of designer furniture is PLN30,000. The annual inflation over the coming year for Poland and Italy are expected to be 6.5% and 2.5% per annum respectively. Assume purchasing power parity holds. How much EUR would Mario needs if he intends to purchase three sets of Polish designer furniture one year from now?

b) S. Krisnamoorthy is planning to purchase his dream motorcycle, a Harley V-twin next year. The Harley V-twin is currently selling at USD 12,500 in United States. However, S.Krisnamoorthy can directly purchase his dream motorcycle in MYR from Harley Davidson of Kuala Lumpur. The current spot rate is MYR4.200/USD and the current inflation rate in United States is 2% whilst in Malaysia is 5%. Assuming 60% complete pass through, what will the price of Harley V-twin be in MYR one year from now?

1. What is fiscal policy and who controls it?

2. What are the two basic fiscal policies that can be used to try to get the economy out of a recession? Name three Presidents who used the government spending technique. Name three Presidents who used the tax technique.

3. Estimate the impact of a $500 billion increase in government purchases, using an MPC of .6. (Use the simple multiplier formula from my notes.)

4. Estimate the impact of a $287 billion tax cut by calculating the change in GDP using an MPC of .6. (Use the simple multiplier formula for tax changes)

5. What is a budget deficit?

6. What are two costs of running a budget deficit for a long period of time?

7. As a percentage of GDP, in what period of time did the United States run the largest budget deficit?

8. The national debt of the United States has increased since 2000. What is one significant policy from the Bush Administration that increased the debt? What is one significant policy from the Obama Administration that increased the debt? What is one significant policy from the Trump Administration that increased the debt?

If the demand for loanable funds shifts to the left and the supply of loanable funds shifts to the right, then the real interest rate rises.

Select one:

True

False

Question text

In the open economy macroeconomic model of the U.S. economy, national savings is equal to the difference between domestic investment and net capital outflow.

Select one:

True

False

Suppose residents of the United States desired to decrease their purchases of foreign assets. Ceteris paribus, the real exchange rate would decrease and the quantity of dollars exchanged in the market for foreign-currency exchange would decrease.

Select one:

True

False

Question text

Suppose that the U.S. imposes an import quota on cars and trucks. The import quota makes the real exchange rate of the U.S. dollar depreciate and the real interest rate in the United States decreases.

Select one:

True

False

Question text

A U.S. corporation borrows funds to build a factory in the U.S. and a factory in China. Borrowing for factories in both locations is included in the U.S. demand for loanable funds.

Select one:

True

False

Purchasing Power Parity If the current spot rate between the U.S. dollar and the Swedish krona was $1 = 7.6123 krona, and if the inflation rate in the United States was 5.7 percent and in Sweden it was 2.7 percent, then what would be the expected spot rate in one year? (Round your answer to 4 decimal places.)

Purchasing Power Parity If the current spot rate between the U.S. dollar and the Swedish krona was $1 = 7.6423 krona, and if the inflation rate in the United States was 6.0 percent and in Sweden it was 3.0 percent, then what would be the expected spot rate in one year? (Round your answer to 4 decimal places.)

Exchange Rate Risk A U.S. firm is expecting cash flows of 16.00 million Mexican pesos and 21.00 million Indian rupees. The current spot exchange rates are: $1 = 11.521 pesos and $1 = 45.545 rupees. If these cash flows are not received for one year and the expected spot rates at that time will be $1 = 11.285 pesos and $1 = 45.025 rupees, then what is the difference in dollars received that was caused by the delay? (Round your answer to 4 decimal places.)

1. For each of the following events draw a diagram of the foreign exchange market for dollars in equilibrium, and show the effect on the demand curve and/or the supply curve of dollars as a result of each of the events. Does the dollar rise or fall in value?

      i) Interest rates in the United States rise.

     ii) Speculators become convinced that the future value of the Japanese yen will be higher relative to the dollar than it is today.

2) What would happen to the value of the dollar if prices in the United States increased more rapidly relative to prices in other countries?

3) Suppose interest rates in the U.S. are 3% while interest rates on comparable bonds in Japan are 1%. By how much is the exchange rate between the yen and dollar expected to change according to the interest-rate parity condition?

4) Suppose the Federal Reserve reduces interest rates while interest rates in Europe do not change. Make use of a graph of the foreign exchange market to show how this will affect the value of the dollar.

5) Briefly explain how a U.S. company that exports to Europe can hedge against exchange rate risk