Wages in most other countries have increased as a percentage of U.S. wages in the past 33 years
a. True
b. False
Indicate whether the statement is true or false
True
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Suppose you own a stock portfolio composed of shares in firms that are part of the financial services industry. You don't work - all you do is plan your consumption now and when you retire, and the only asset you have is your stock portfolio. In this problem, model your decisions in a graph with "consumption now" on the horizontal axis and "consumption at retirement" on the vertical. Throughout, assume that the long run rate of return of investment is r over the period from now to retirement. a. Graph your initial budget constraint - and indicate where in your graph your endowment point lies as well as what the slope of the budget constraint is. b. This morning, you woke up to find that the current financial crisis has wiped out some of the firms in your stock portfolio. As a result,
your portfolio is only worth half of what it was yesterday. Assuming that the long run rate of return r remains unchanged, what has just happened to your budget constraint? c. Assuming that consumption now and in the future is always a normal good, will you cut down on your consumption plans now? d. Now suppose I offer you a deal: I will give you enough cash to raise your current (financial) wealth back to what it was yesterday, but in exchange you agree to give me half of any return in your investments when you retire. You carefully analyze the deal and calculate that, under this deal, you could in fact just afford to consume the same bundle (but not strictly more) as you would without the deal. Will you accept the deal? e. Does your answer to (d) depend on our assumption that consumption is always a normal good? f. Can you tell whether, if you accept the deal, you will consume more than you otherwise would have? What does your answer depend on? g. Can you tell whether, if you accept the deal, you consume more now than you had planned yesterday before the financial crisis wiped out half your wealth? What does your answer depend on? What will be an ideal response?
Why does an exchange rate-output combination lying above both DD and AA jump first to AA in equilibrium?
A) Asset prices can adjust immediately. B) Production plans can adjust immediately. C) to preserve full employment D) Prices are nominal and demand is real. E) Aggregate demand adjusts faster than output.
Barter works best when: a. there is an absence of a double coincidence of wants
b. many different products are available in the economy. c. money is readily available to establish relative prices. d. each trader has what the other wants and wants what the other has. e. highly developed economies achieve extensive specialization of labor.
Which of the following is the most sensitive to interest rate changes?
a. The demand for non-durable goods. b. The demand for inexpensive goods. c. The demand for durable goods. d. The demand for necessities. e. The demand for services.