Best Western Gift shop is interested to know how much money, on average, their customers spend each visit in the housewares department. They go back through their records and draw a sample of 1,000 and calculate each customer’s average spending on housewares.

a) Identify the population, sample, parameter, statistic, variable and data for this example.

b) Describe a situation in which you would calculate a parameter rather than a statistic.

Best Western determined that each customer’s spending is normally distributed with a mean of $37 and a standard deviation of $3.40.

c) What percentage of people spend between $20 and $32?

d) Customers get a $6 coupon when they spend over $35. Of the next 200 people that visit the store, how many coupons can they expect to give away?

22. Victoria Credit Bank (VCB) issues bonds to households who are not depositors in that bank. VCB makes a loan to a commercial company, Rio Tinto, which is a depositor in that bank. Rio Tinto is funding the forage of a new mine. The households fund their investment with accumulated past savings and hold their bank deposits in Northern Territory Credit Bank (NTCB).

a) Using a flow-of-funds diagram incorporating the surplus spending units, deficit spending units, financial intermediary, financial markets and payment system illustrate how the funds and the financial instruments circulate in the financial system. In your diagram make a clear distinction between bank deposits and ESF, and indicate money and instrument creation/destruction where relevant.

b) Explain whether there is channelling of funds and transit of funds. (1 mark)

(~there is no additional information)

In this chapter we have assumed that the fiscal policy variables G and T are independent of the level of income. In the real​ world, however, this is not the case. Taxes typically depend on the level of income and so tend to be higher when income is higher. In this​ problem, we examine how this automatic response of taxes can help reduce the impact of changes in autonomous spending on output.

Consider the following behavioral​ equations:

C​ = c0​ + c1YD

T​ = t0​ + t1Y

YD​= Y−T

G and I are both constant. Assume that t1 is between 0 and 1. c0 is autonomous​ consumption, c1 is the propensity to​ consume, and t0 is the part of taxes not dependent on income.  

Because of the effect of taxes on the​ economy, it responds (less, the same, more) to changes in autonomous spending than when taxes are independent of income.

UNIT 5

Discussion Board

This week, you will discuss how you are affected by fiscal policy. For instance, you could write about how infrastructure projects in your community affect you and your community, and then how they affect the economy as a whole.

1. Please identify and explain an important infrastructure project in your city, state, or region that is currently underway or being discussed. Such a project could be an airport, a highway, a bridge, a light rail or subway system, a tunnel, new school buildings, new landfills and so on.
2. Please include information about the expected costs of the project, and how public spending on the project could stimulate the economy in your area. How would the multiplier effect work here? Do you think that spending on such a project would create new jobs beyond the project itself?

At the beginning of the year, Lopez Company had the following standard cost sheet for one of it's chemical products:

Direct Materials (4 lbs @ $2.80) - $11.20

Direct Labor (2 hrs @ $18.00) - 36.00

FOH (2 hrs @ $5.20) - 10.40

VOH (2 hrs @ $0.70) - 1.40

Standard Cost Per Unit - $59.00

Lopez computes its overhead rates using practical volume, which is 90,000 units.

The actual results for the year are as follows:

(a) units produced: 88,000

(b) direct labor: 170,000 hours

(c) FOH: $930,000 and

(d) VOH: $125,000

1. Compute the variable overhead spending variance.

2. Compute the variable overhead efficiency variance.

3. Compute the fixed overhead spending variance.

4. Compute the fixed overhead volume variance.

24.

Blue Eagle Banking is considering a project that would last for 3 years and have a cost of capital of 11.76 percent. The relevant level of net working capital for the project is expected to be 20,000 dollars immediately (at year 0); 6,000 dollars in 1 year; 29,000 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?

Assume the economy is at full employment. Use the IS-LM/ AD-AS model to show the short-run and long-run impacts of a positive demand shock such as an increase in business confidence and investment spending on: the real interest rate (r), real GDP (Y), unemployment (U), consumption spending (C), the nominal money supply (M), the price level (P) and the real value of the money supply(M/P). You must present properly labeled (IS-LM and AD-AS diagrams to show the SR and LR effects. Initial equilibrium points should be labeled “A”; short-run equilibrium points should be labeled “B”; and the LR should be labeled “C”. Also, present individual time graphs such as the graphs I use in class to show the impacts on EACH of these variables over time. Again use the “A”, “B”, “C” convention.

Recharge Corp. manufactures high speed blenders. The following is manufacturing overhead data for the company for the year ended December 31, 2019.

Budgeted number of output (in units) 1,200

Budgeted machine hours per unit: 3

Budgeted machine hours 3,600

Actual number of machine hours 3,420

Required:

(A) Compute the variable overhead spending variance and the variable overhead efficiency variance. Indicate whether the variance is favourable or unfavourable.

(B) Compute the fixed overhead spending variance and the fixed overhead volume variance. Indicate whether the variance is favourable or unfavourable.

(C) In general, what do each of the variable overhead variances and the fixed overhead variances tell us?

. Assume a simple closed Keynesian model where the MPC is 0.9 and the MPIM is 0.1. Also assume that potential real GDP is $2000 million, while actual (equilibrium) real GDP is $1200 million.

            a. What is the GDP gap?

            b. Is there an inflationary or recessionary gap?

            c. What change in government spending is required to restore the economy to full

                employment GDP? Show graphically using a Keynesian cross diagram.

d. What change in lump-sum taxes would bring about the same result?

e. Now assume that a Balanced Budget Amendment is passed, so that increases in

     government spending must be accompanied by equal increases in lump-sum

     taxes. What change in both G and T will close the GDP gap? (HINT: What is

     the balanced budget multiplier in this model?)

You have looked at the current financial statements for Reigle Homes, Co. The company has an EBIT of $3.15 million this year. Depreciation, the increase in net working capital, and capital spending were $265,000, $105,000, and $495,000, respectively. You expect that over the next five years, EBIT will grow at 15 percent per year, depreciation and capital spending will grow at 20 percent per year, and NWC will grow at 10 percent per year. The company has $19.5 million in debt and 400,000 shares outstanding. After Year 5, the adjusted cash flow from assets is expected to grow at 3.5 percent indefinitely. The company’s WACC is 9.25 percent and the tax rate is 22 percent. What is the price per share of the company's stock?