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Describe the effects of a decrease in the interest rate on present and next period's consumption if the individual is a net lender.
If next year's income increases by $3,000 and the interest rate is 5%, by how much does the intertemporal budget line shift?
Draw Maria's indifference curves. What is the implication of Maria's preferences for the marginal rate of substitution?
Identity the point on the intertemporal budget line at which Prakash has no money at the end of period 1 and is not borrowing from anyone.
What is the permanent income hypothesis? How does its consumption function relate to intertemporal choice?
How do binding borrowing constraints affect the IBL and current and future consumption? How does his theory relate to intertemporal choice?
What can shift the intertemporal budget line, IBL? What happens to current and future consumption when IBL shifts occur?
What is the logic behind the intertemporal budget constraint? On what assumptions is it based, and how is its slope interpreted?
Explain why a central bank might want to intervene in the foreign exchange market to prevent an excessive appreciation of its currency?
What is the effect of Anthony's decision on the labor supply curve? What would be the effect on the real wage and employment if the supply curve does not shift?
Why does real wage rigidity contribute to unemployment? What are its causes? What has caused the natural rate to change over time?
What is frictional unemployment? Why can it be beneficial for workers, firms, and the economy? Why does structural unemployment occur?
What is the employment ratio? What notable trends in this ratio have occurred over the past fifty years?
In the aftermath of the subprime financial crisis of 2007-2009. Explain the effect on residential investment of an increase in real mortgage rates.
Discuss the short- and long-run consequences of this trend in housing prices and residential investment.
Explain the effect of such regulations on the future desired level of capital stock and investment in this industry.
What are the implications of a less efficient financial system for the level of investment in developing countries?
Explain the consequences of the following events on the desired level of capital stock for the next period according to the neoclassical theory of investment.
Suppose the annual depreciation rate for computers is 35%. Calculate the user cost of capital for computers.
How are Tobin's q theory and the neoclassical theory of investment related? How is residential investment related to housing prices?
Explain how the desired levels of capital and investment are affected by change in the expected marginal product of capital, the user cost of capital and taxes.
What is the user cost of capital? What variables determine this cost and how does a change in each variable affect it?
Comment on the impact on the Fed's credibility of the appointment of a majority of governors reluctant to increase interest rates to fight inflation.
What would happen to the central bank's credibility if it is engaged in inflation targeting and its target was 2%, plus or minus 0.5%?
As part of its response to the subprime financial crisis, the Fed lowered the federal funds rate target. Comment on the Fed's credibility to fight inflation.