9.5 A closed economy is described as follows:

C^d = 70 + .6(Y-T) - 300r                I^d = 100 - 500r

L = .2Y - 250i     p^e = 0%       G = 40     _      T = 50

M = 120                          NFP = 0         Y = 210

(a) What will the interest rate be in the long run? SHOW YOUR WORK.
(b) What will the price level be in the long run? SHOW YOUR WORK.
(c) Given an equation for the AD curve for this economy in the form Y = …………. (The answer will not have round, pretty numbers. But, if you have time, you can double check your answer to verify that it is the correct equation another way.)

The following table gives national income data for Aspacifica.

GDP STATISTICS

            ______________________________________________________

                                             2010/11             2011/12             2012/13

            ______________________________________________________

            Nominal GDP

            ($ billion)                     6,096                6,485                6,745

            Price index

            (2009/10 = 100) 112                   115                   118

         _________________________________________________________

1. Calculate the percentage change in nominal GDP from 2010/11 to 2011/12, and from 2011/12 to 2012/13.
2. Calculate the inflation rate over these two periods.
3. Calculate real GDP in 2009/10 prices for the three years.
4. What are the growth rates of real GDP in 2011/12 and 2012/13?
5. Why are the growth rates in (d) lower than in (a)?

Data for Hermann Corporation are shown below: Per Unit Percent of Sales Selling price $ 110 100 % Variable expenses 77 70 Contribution margin $ 33 30 % Fixed expenses are $82,000 per month and the company is selling 3,500 units per month. Exercise 6-5 Part 2 2-a. Refer to the original data. How much will net operating income increase (decrease) per month if the company uses higher-quality components that increase the variable expense by $5 per unit and increase unit sales by 20%. 2-b. Should the higher-quality components be used?

Short Answer. 2-3 sentences

1. For a bank, what is one primary disadvantage of holding more cash? (It is not inflation.)

2. What is one advantage of an earnings sensitivity analysis (NII simulation) that is not provided by a static GAP report?

3. If you invest $1,000 today in a security paying 8% compounded annually, how much will the investment be worth 40 years from today?

4. You are a bank investment officer considering buying a bond. It is a three-year bond paying an annual coupon rate of 4%, paid semi-annually. The current annual market rate of interest for similar bonds is 3%. What should the price of the bond be (par=100)?

You prepare the direct materials purchase budgets for Crunchy Pickles. In August, the company plans to sell 180 cases of pickles, each containing 12 jars of pickles. Each jar of pickles requires 2 pounds of cucumbers. Wastage and spoilage attributed to each jar is 0.1 pound and 0.25 pound, respectively. The standard price for each pound of cucumbers is $0.75. The company plans to have 500 pounds of cucumbers in inventory at the end of July and 100 pounds of cucumbers in inventory at the end of August. What will you report as the August direct materials purchase budget for pickles?

A: $4,676

B : $5,176

C : $2,160

D : $3,507

Pharoah Inc. had beginning inventory of $12,017 at cost and $19,700 at retail. Net purchases were $112,000 at cost and $174,400 at retail. Net markups were $9,100, net markdowns were $7,400, and sales revenue was $160,500. Assume the price level increased from 100 at the beginning of the year to 105 at year-end. Compute ending inventory at cost using the dollar-value LIFO retail method. (Round ratios for computational purposes to 1 decimal place, e.g. 78.7% and final answer to 0 decimal places, e.g. 28,987.)

Ending inventory using the dollar-value LIFO retail method $

Problem 1: Domestic market demand for some good is described by: P = 100 – Q. Domestic supply is described by P = 20 + 2Q.

1. Illustrate demand and supply. Find the equilibrium for this closed market.
2. Suppose that the commodity in question is available on the world market at a constant price of 10. If trade is unrestricted, what is the new equilibrium? How much do domestic producers lose if free trade is allowed?
3. Suppose there is a quota of 50 units allowed in.   Illustrate this situation in a diagram. Is there any deadweight loss? Explain.
4. How do domestic firms benefit from the situation in part 2? Relate your answer to the diagram.

1. From the information provided here in respect of an engineering firm present statements of product mix which will yield the highest profit to the firm.

Products                                                               A                 B                 C

Raw materials per unit (Kg)                              10               6                  15

Labour hours per unit @ $ 1 per hour            15               25               20

Selling price per ($)                                          125             100             200

Maximum production (units)                           6,000          4,000         3,000

100,000kgs of raw material are available at $ 10 per kg. Maximum production hours are 184,000 with a possibility for a further 15,000 hours in overtime basis at twice the normal wage rate.

(b) Would recommend overtime?

Assume there are two firms in the bean sprouts industry and they play Cournot. The inverse market demand curve is given by p(y) = 100−2y_T, where y_T is the total output of all the firms. The total cost function for each firm in the industry is given by c(y) = 4y.

i . Find the marginal revenue and marginal cost equations for the firms.

ii. Determine the best response functions for each firm.

iii. Calculate the Nash equilibrium levels of output for each firm. What is the equilibrium price?

iv. Draw the best response functions in a graph and then show the Nash equilibrium from (ii).

v. Calculate the profits of the firms.