In the RAND study, two plans had full coverage for spending within the hospital, but one had a $150 deductible for ambulatory care. The plan with the ambulatory care deductible had a lower probability of hospital admission (0.115) per year than did the plan with full coverage for everything (0.128), even though both plans fully covered hospital care.

a. Based on this result, are hospital care and ambulatory care substitutes or compliments? Do they have a positive or negative cross-price elasticity? Use the definitions of substitutes and compliments to explain how you know.

b. Considering just this result, what can we say about the impact of an ambulatory care deductible on total combined spending on ambulatory and hospital care? Please explain.

Suppose the U.S. has a closed economy with GDP (Y) equal to $20.3 trillion, consumption (C) equal to $12.0 trillion, government spending (G) equal to $3.9 trillion, transfer payments (TR) equal to $1.8 trillion, and taxes (T) equal to $4.2 trillion.

Suppose the government passes legislation to reduce the size of its debt by reducing government spending by $0.4 trillion. What must happen to total savings (S)? That is, what is the dollar amount by which total savings changes? Assume the values for GDP, consumption, taxes, and transfer payments do not change.  Provide your answer in trillions of dollars rounded to one decimal place. Use a negative sign "-" for negative changes. Do not include any symbols, such as "$," "=," "%," or "," in your answer.

In a closed economy, given the following:

The consumption function C = 0.8(1 – 0.25) Y + 12          

The average tax rate t = 25%

The level of private investment I = 26

The level of government spending G = 14

Where Y is the national income.

• Calculate the equilibrium level of income and output in the economy.
• Calculate the expenditure multiplier and show the effect of

1. an increase in government spending and
2. an increase in private investment.

Given the short run production function, Q = 3L2 – 0.1L3

( a) Write down the equations for,

(i) the marginal product of labor, MPL

(ii) the average product of labor, APL.

(b) Find the value of Q for which the MPL and APL are maximized.

(c) Show that the MPL= APL when the APL is at a maximum

A small open Economy is described by the following equations:

C= 50 + 0.75(Y – T), I = 200-20r,

NX = 200-e, M/P = Y-40r, G= 200, T = 200, M = 3,000, P = 3, and r* = 5

A. Drive the IS* and LM* equations

B. Calculate the equilibrium Exchange Rate, level of income, and net exports

C. Assume a floating exchange rate, calculate what happens to exchange rate , the level of income, net exports, and money supply if if the government increases its spending by 50.

D. now assume a fixed exchange rate, calculate what happens to exchange rate , the level of income, net exports, and money supply if if the government increases its spending by 50.

White Mountain Consulting is considering a project that would last for 2 years and have a cost of capital of 17.72 percent. The relevant level of net working capital for the project is expected to be 21,000 dollars immediately (at year 0); 32,000 dollars in 1 year; and 0 dollars in 2 years. Relevant expected revenue, costs, depreciation, and cash flows from capital spending in years 0, 1, and 2 are presented in the following table (in dollars). The tax rate is 50 percent. What is the net present value of this project?

3. a) Suppose that a firm has a capital cost (r) of $8 and a labor cost (w) of $4. Graph an isocost line associated with spending $1,000. On the same graph, draw another isocost line associated with spending $2,000. What are the slopes of these lines?

b) Using our cost-minimizing (economic efficiency) condition, what is the optimal ratio of the marginal product of labor to the marginal product of capital for this firm? Why? Use a production isoquant on your graph to demonstrate your answer.

c) Suppose the cost of labor is actually $8, rather than $4. How do your isocost lines change? How does your answer to b) change? How would you expect the firm’s behavior to change?

Use the following news clip to work on the following questions:

Debt Reduction at Center of State Election Campaign
Queensland business leaders are demanding that the election campaign focuses on reducing a
growing debt level and putting the state’s finances back on track. The state’s financial position
has been under fire because of a debt blowout caused by the domestic and international market
volatility and the natural disasters last year.

a. If reducing debt means spending cuts, will aggregate expenditure fall by more than, less
than or exactly the same as the spending cuts? Explain.
b. Explain and draw a graph to illustrate the effects of the events described in the news clip
on aggregate expenditure and aggregate demand in both the short run and the long run.

Silver Sun Industrial is considering a project that would last for 3 years and have a cost of capital of 14.36 percent. The relevant level of net working capital for the project is expected to be 24,000 dollars immediately (at year 0); 7,000 dollars in 1 year; 36,000 dollars in 2 years; and 0 dollars in 3 years. Relevant expected operating cash flows and cash flows from capital spending in years 0, 1, 2, and 3 are presented in the following table. What is the net present value of this project?

Indigo River Packaging is considering a project that would last for 2 years and have a cost of capital of 17.88 percent. The relevant level of net working capital for the project is expected to be 24,000 dollars immediately (at year 0); 26,000 dollars in 1 year; and 0 dollars in 2 years. Relevant expected revenue, costs, depreciation, and cash flows from capital spending in years 0, 1, and 2 are presented in the following table (in dollars). The tax rate is 50 percent. What is the net present value of this project?

You have looked at the current financial statements for Reigle Homes, Co. The company has an EBIT of $3,050,000 this year. Depreciation, the increase in net working capital, and capital spending were $235,000, $100,000, and $465,000, respectively. You expect that over the next five years, EBIT will grow at 16 percent per year, depreciation and capital spending will grow at 21 per year, and NWC will grow at 11 per year. The company currently has $17,100,000 in debt and 350,000 shares outstanding. After Year 5, the adjusted cash flow from assets is expected to grow at 3 percent indefinitely. The company’s WACC is 9.4 percent and the tax rate is 35 percent.

What is the price per share of the company's stock?