4. The major advantage of the IS-LM model compared to the simple model developed earlier is that is introduces the effect of interest rates on the economy. Explain the effect that interest rates have on spending by households and firms, and show how this can be illustrated graphically through the Ap demand schedule?

Based on your understanding of government budgeting, do you think that continuing resolutions negate the legitimate necessity for congress to actually pass a budget? Additionally, if this does bypass the general functionality of congress, does this also essentially allow politicians to bypass responsibility for deficit spending?

Whether or not there is a direct link, who should be responsible for determining the safety of the public? Is this the scientific community’s issue, the business’s (such as the cell phone manufacturers) responsibility, or the government's concern? And what type of proof do we need before justifying spending large sums of money on research??

This is an exploratory problem intended to introduce the idea of curvilinear regression. Personally, I was a bit shocked to discover that multiple LINEAR regression is the main vehicle to calculate regressions for data with nonlinear relationships...sounds a bit counter-intuitive. However, if we think of the higher-power terms (quadratic, cubic, etc.) as distinct variables, the ideas work well together.

Here is a data set for students in a gifted program. The first score (X1=GPA) is the students’ math grade from last year, and the second score (Y=SAT) is their SAT-M score. As this is a non-representative group (when considering the population of all students taking math classes in high school), it is not unexpected to see range-restriction effects (generally all high performing, few lower performing representatives) or ceiling effects (maximum score on the SAT-M is 800). In data such as this, it is not uncommon to see non-linear trends.

Step 1: Copy the data into your preferred statistical software program. Change the variable names to GPA and SAT if need be. Before doing any analysis, look at a scatterplot of the data with GPA on the horizontal axis and SAT on the vertical axis. Be sure to note any trends.

The following includes information for Excel users. If you are not using Excel, please disregard.

Step 2: Run a regression (Data Analysis > Regression) with SAT as the X variable. Again, be sure to note what evidence supports the assumptions for a regression analysis. Report the regression equation and the requested statistics:

SAT=___+___×GPA
(Report regression coefficients accurate to 3 decimal places.)

R2adj=
(Report accurate to 3 decimal places.)

Step 3: Create a third variable called GPAsq (for squared GPA). In Excel, use a formula, something like =B1^2 and fill down the rest of the column.

Step 4: Run the quadratic regression by adding the independent variable GPAsq to the model. Report the regression equation and the requested statistics:

SAT=__+__ ×GPA + ___ ×GPA2
(Report regression coefficients accurate to 3 decimal places.)

R2adj=
(Report accurate to 3 decimal places.)

Step 5: Notice how the adjusted coefficient of multiple determination changed from the bivariate regression to the quadratic (multiple) regression. The next step is to determine if this more complicated model is statistically significantly better than the more parsimonious linear model.

For the multiple regression model, what was the F-ratio and the resulting P-value?
Fmodel=
(Report accurate to 2 decimal places.)
P=
(Report accurate to 3 decimal places.)

Suppose the U.S. economy faces a productivity slump, while at the same time the federal government begins spending a lot of money on defense and social programs (this is akin to what happened in the U.S. during the 1960s and 1970s). Assume wages are sticky in the short run.

a. For each of the following variables, state whether it rises or falls, or whether the impact is ambiguous, after the two events described above: real GDP growth rate, unemployment, and the inflation rate.

b. If the Fed was concerned about the inflation rate, what action would it take regarding open-market operations? What impact would this have on the federal funds rate and aggregate demand in the economy?

c. What challenge does the Fed face in bringing the economy back to the real GDP growth rate it had before the productivity slump and increase in government spending?

You have looked at the current financial statements for Reigle Homes, Co. The company has an EBIT of $4,650,000 this year. Depreciation, the increase in net working capital, and capital spending were $315,000, $157,000, and $565,000, 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 per year, and NWC will grow at 10 per year. The company has $26,500,000 in debt and 470,000 shares outstanding. After Year 5, the adjusted cash flow from assets is expected to grow at 3.6 percent indefinitely. The company’s WACC is 9.75 percent and the tax rate is 24 percent. What is the price per share of the company's stock? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

2. In order for there to be an accurate reflection of the aggregate economic indicators in a model the equilibrium aggregate real GDP and the equilibrium aggregate price level needs to

intersect.

be considered in individual markets.

only use long run curves.

4. As the aggregate price level in an economy rises, ________.

aggregate demand increases

real GDP increases   

aggregate supply increases

15. If the economy is in a recession, appropriate policies to pursue may include

a reduction in research & development spending that shifts the AS curve to the left.

an income tax cut that shifts the AD curve to the right.

a decrease in government spending that shifts the AD curve to the right.

16. The economic model of aggregate demand curve and aggregate supply curve helps explain the

expansion and contractions in individual markets.

three goals of economic policy which are economic growth, high inflation, and full employment.

shifts in real GDP and the price level.

In addition to other costs, Grosha Telephone Company planned to incur $600,000 of fixed manufacturing overhead in making 500,000 telephones. Grosha actually produced 508,000 telephones, incurring actual overhead costs of $599,400. Grosha establishes its predetermined overhead rate based on the planned volume of production (expected number of telephones).

Required

A. Calculate the predetermined overhead rate. (Round your answer to 2 decimal places.)

B. Determine the fixed cost spending variance and indicate whether it is favorable (F) or unfavorable (U). (Select "None" if there is no effect (i.e., zero variance).)

C. Determine the fixed cost volume variance and indicate whether it is favorable (F) or unfavorable (U). (Select "None" if there is no effect (i.e., zero variance).)