In 2011, the spot rate of exchange between the Turkish lira (Tl) and the euro was 2.016 Tl/€. In 2012, the rate was 2.348 Tl/€. Based on this information, did the euro appreciate or depreciate relative to the Turkish lira? What was the amount, in percentage change terms, of the appreciation/depreciation?
Based on your answer to Question 6, what was the impact of the exchange-rate change on European consumers’ purchasing power over Turkish goods and services relative to their purchasing power over European goods and services?
In 2011, the CPI for Turkey was 398.2 and the euro-area CPI was 114.4. In 2012, the CPI for Turkey was 456.5 and the euro-area CPI was 120.4. Based on this information, what was the rate of inflation for Turkey and the rate of inflation for the euro area?
Based on your answer to Question 8, what was the impact of the different inflation rates on European consumers’ purchasing power over Turkish goods and services relative to their purchasing power over European goods and services?
Using the information in Questions 6 and 8, calculate the real rate of exchange between the Turkish lira and the euro for 2011 and 2012. In real terms, did the euro appreciate or depreciate relative to the Turkish lira? What was the amount, in percentage-change terms, of the appreciation/depreciation?
Using the information in Questions 6 and 8, and according to absolute purchasing power parity (PPP), was the euro overvalued or undervalued relative to the Turkish lira in 2012? By what percent?
Using the information in Questions 6 and 8, and according to relative purchasing power parity (PPP), what is the predicted value of the euro for 2012? Based on your answer, was the euro overvalued or undervalued relative to the Turkish lira in 2012? By what percent?
Category: Economics
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(Answered) 6. In 2011, the spot rate of exchange between the Turkish lira (Tl) and the euro was 2.016 Tl/€. In…
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(Answered) a. Define the MPC and determine its value in this example: the MPC is the fraction of extra income…
Define the MPC and determine its value in this example: the MPC is the fraction of extra income households are expected to spend buying currently produced consumer products (i.e., expected change in Consumption Spending ÷ change in aggregate income) in this example.
Define the MPS and determine its value in this example: The MPS is an abbreviation for the Marginal Propensity to Save which is defined as the fraction of extra income households are expected to save (i.e., not spend on currently produced consumer goods).
Define equilibrium aggregate income and aggregate output (Y): equilibrium aggregate income and aggregate output is the dollar value of products business firms are expected to produce in the current period given the planned expenditures.
Use the curves above to answer the following:
equilibrium Aggregate Expenditures = Aggregate Expenditures in this example.
Define Investments (I) and determine its value: firms’ planned purchases of currently produced capital goods.
Define Government Expenditures and determine its value: Government Expenditures is the dollar amount of currently produced products the Government plans to purchase and in this case = $2 trillion/year (see curve labelled G).
Define Net Exports and determine its value: planned net foreign purchases of currently produced products from firms in this economy.
Now assume only Government Expenditures increases by $1 trillion/year (see new G curve). (1) Draw the new Government Expenditures curve and the new Aggregate Expenditure curve. Blue curve above original curve labelled G is the new Government Expenditures curve and blue above original AE curve is the new Aggregate Expenditure curve and use the new AE curve (blue AE curve) to answer the following [This is done for you] -
(Answered) 9. [3] The taxation of intermediate goods and services (goods and services used in the productionof…
➤ How do you interpret a binary variable in a log-linear house price regression?
In a model with log house value and a dummy variable, the coefficient on the dummy gives the percentage difference in value between groups. The exact percent change equals 100*(exp(beta)-1). For small beta, you can approximate percent change as 100*beta. This adjusts for semilog transformation and yields an intuitive effect size. -
(Answered) Gains from tradeSuppose there exist two imaginary countries, Denali and Sequoia. Their labor forces…
Gains from trade
Suppose there exist two imaginary countries, Denali and Sequoia. Their labor forces are each capable of supplying four million hours per day that can be used to produce almonds, shorts, or some combination of the two. The following table shows the amount of almonds or shorts that can be produced by one hour of labor:
Country
Almonds (pounds per hour of labor)
Shorts (pairs per hour of labor)
Denali
8
16
Sequoia
5
20
Suppose that initially Denali uses 1 million hours of Labor per day to produce almonds and 3 m illion hours per day to produce shorts, while Sequoia uses 3 million hours of labor per day to produce almonds and 1 million hours per day to produce shorts. As a result, Denali produces 8 million pounds of almonds and 48 million pairs of shorts, and Sequoia produces 15 million pounds of almonds and 20 million pairs of shorts. Assume there are no other countries willing to engage in trade, so, in the absence of trade between these two countries, each country consumes the amount of almonds and shorts it produces.
Country
Almonds produced (million pounds)
Shorts produced (million pairs)
Denali
8
48
Sequoia
15
20
Denal’s opportunity cost of producing 1 pound of almonds is ◻ of shorts, and Sequoia’s opportunity cost of producing 1 pound of almonds is ◻ of shorts. Therefore, ◻ has a comparative advantage in the production of almonds, and ◻ has a comparative advantage in the production of shorts.
Suppose that each country completely specializes in the production of the good in which it has a comparative advantage, producing only that good. In this case, the country that produces almonds will produce ◻ million pairs per day. million pounds per day, and the country that produces shorts will produce ◻
In the following table, enter each country’s production decision on the third row of the table (marked) -
(Answered) Mays and McCovey are beer-brewing companies that operate in a duopoly (two-firm oligopoly). The…
Mays and McCovey are beer-brewing companies that operate in a duopoly (two-firm oligopoly). The daily marginal cost (MC) of producing a can of beer is constant and equals $0.80 per can. Assume that neither firm had any startup costs, so marginal cost equals average total cost (ATC) for each firm.
Suppose that Mays and McCovey form a cartel, and the firms divide the output evenly. (Note: This is only for convenience; nothing in this model requires that the two companies must equally share the output.) Place the black point (plus symbol) on the following graph to indicate the profit-maximizing price and combined quantity of output if Mays and McCovey choose to work together.
Monopoly Outcome
0 5 10 15 20 25 30 35 40 45 50
2.00 1.80 1.60 1.40 1.20 1.00 0.80 0.60 0.40 0.20
PRICE (Dollars per can)
QUANTITY (Thousands of cans of beer)
Demand MR MC = ATC
When they act as a profit-maximizing cartel, each company will produce cans and charge per can. Given this information, each firm earns a daily profit of, so the daily total industry profit in the beer market is.
Oligopolists often behave noncooperatively and act in their own self-interest even though this decreases total profit in the market. Again, assume the two companies form a cartel and decide to work together. Both firms initially agree to produce half the quantity that maximizes total industry profit. Now, suppose that Mays decides to break the collusion and increase its output by 50%, while McCovey continues to produce the amount set under the collusive agreement.
Mays’s deviation from the collusive agreement causes the price of a can of beer to per can. Mays’s profit is now, while McCovey’s profit is now. Therefore, you can conclude that total industry profit when Mays increases its output beyond the collusive quantity. -
(Answered) 2. How short-run profit or losses induce entry or exitFantastique Bikes is a company that…
2. How short-run profit or losses induce entry or exit
Fantastique Bikes is a company that manufactures bikes in a monopolistically competitive market. The following graph shows Fantastique’s demand curve, marginal revenue curve (MR), marginal cost curve (MC), and average total cost curve (ATC).
Place the black point (plus symbol) on the graph to indicate the short-run profit-maximizing price and quantity for this monopolistically competitive company. Then, use the green rectangle (triangle symbols) to shade the area representing the company’s profit or loss.
Monopolistically Competitive Outcome — Profit or Loss
Given the profit-maximizing choice of output and price, the shop is earning profit, which means there are more shops in the industry than in long-run equilibrium.
Now consider the long run in which bike manufacturers are free to enter and exit the market. Using your results from above, show the possible effect of free entry and exit by shifting the demand curve for a typical individual producer of bikes on the following graph.
Which of the following statements are true about both monopolistic competition and monopoly? Check all that apply.
Firms earn zero profit in the long run.
Price equals average total cost in the long run.
Price is above marginal cost.
Firms can earn positive profit in the long run. -
(Answered) This question asks you to interpret the following estimates of the effect of individual i’s health…
This question asks you to interpret the following estimates of the effect of individual i’s health insurance status (Di) on their health status (Yi), measured on a ten-point scale (10 = excellent health, 1 = very poor health). Parental education (X1) is measured in years of schooling, and the instrument (Zi) indicates whether individual i was assigned health insurance eligibility through a state-run lottery.
Table 1: Effect of Health Insurance on Health Status
Panel A: OLS (1)
Panel A: OLS + Parental Education (2)
Health Insurance (Di)
0.60
0.45
(0.08)
(0.07)
Parental Education (X1)
0.05
(0.01)
Controls
No
Yes
Observations
1,200
1,200
Panel B: 2SLS (3)
Panel B: 2SLS + Parental Education (4)
Health Insurance (Di)
1.20
1.10
(0.50)
(0.55)
Lottery Assignment (Zi)
0.18
0.16
(0.04)
(0.05)
Controls
No
Yes
Observations
1,200
1,200
(a) Interpret the OLS coefficient in column (1) of Panel A. Is it significantly different from zero at the 5% level?
(b) What concern do you have with interpreting this OLS coefficient causally? In which direction would you expect bias?
(c) Explain why the coefficient changes when parental education is included in column (2) of Panel A.
(d) Interpret the second-stage coefficient in column (3) of Panel B. How does its magnitude relate to the OLS estimates in Panel A?
(e) Interpret the first-stage coefficient for Zi in column (3) of Panel B. Why is relevance of the instrument important?
(f) Approximately, what is the implied effect of a change in Zi on Yi? Do you observe weak instrument concerns when comparing columns (3) and (4)? -
(Answered) Week 7 Discussion – Market Failure Wherever there is a market failure there are entrepreneurial…
➤ How can firms like Unciphered reduce asymmetric information and improve market outcomes?
Firms can perform code audits, publish vulnerability disclosures, offer recovery and remediation services, and provide independent certifications. These steps increase transparency, enable warranties or insurance, and create reputational incentives. Together, they shrink information gaps, boost buyer confidence, and lower transaction costs in crypto and related digital-asset markets. -
(Answered) McDonald’s (MD) and Hungry Jack’s (HJ) are contemplating opening a restaurant in West End. After…
McDonald’s (MD) and Hungry Jack’s (HJ) are contemplating opening a restaurant in West End. After doing some market research, MD found it would realize a monopoly profit of 10 if it had the only restaurant in the market, while HJ found it would realize a monopoly profit of 8 if it had the only restaurant in the market. If a firm does not enter the market, then it realizes a profit of 0. If MD and HJ both enter the market, they have two possible (discrete) pricing choices: charge high prices PH and low prices PL. If they both choose PH, then they each earn profits of 6. If they both choose PL, then they each earn profits of 3. If one firm charges PH and the other chooses PL, then the firm charging PH earns a profit of 2 and the firm charging PL earns a profit of 7. Assume that MD and HJ set their prices simultaneously in the case that they have both entered the market.
(1) Consider first the pricing game assuming (for the moment) that both MD and HJ have entered the market. Write down the game table/normal form for this simultaneous pricing game. Find the outcome of this game.
(2) Now consider a two-period entry game. In the first period MD and HJ simultaneously choose to either enter the market (ENTER) or not enter the market (NOT ENTER). Upon seeing the period one entry decisions of both firms, in period two MD and HJ simultaneously choose their prices if they are both in the market. If a firm is the sole entrant, it simply earns its monopoly profit. If a firm does not enter the market, it earns a profit of 0. Find the equilibrium outcome of this game.
(3) Suppose now that if a firm does not enter the market then it realizes a profit of 4 (say from investing the money that it would have otherwise spent on opening a restaurant). Find the outcome of this game. -
(Answered) Air pollutants from inon- and steel-making operaloss have historically been an eevironmental…
Air pollutants from iron- and steel-making operations have historically been an environmental concern. These pollutants include gaseous substances such as oxides of sulphur, nitrogen dioxide and carbon monoxide. In addition, particulates such as dust and soot, which may contain lime product residues, have been a concern, but the continuous improvements in the technology of steelmaking and of emissions control during the past two decades, coupled with more stringent government regulations, have significantly reduced stack emissions in North America, Western Europe and Japan. Total pollution control costs, over half of which relate to air emissions, have been estimated to range from 1 to 3% of total production costs; air-pollution control installations have represented approximately 10–20% of total plant investments. Such costs create a barrier to the global application of state-of-the-art controls in developing countries and for older, economically marginal enterprises.
Air pollutants vary with the particular process, the operating and composition of the plants, the raw materials employed, the sources and amounts of fuel burned, the extent to which waste products are recycled into the process and the efficiency of the pollution controls. For example, the introduction of basic-oxygen steel-making has permitted the collection and recycling of waste gases in a controlled manner, reducing the amounts to be exhausted, while the use of the continuous-casting process has reduced the consumption of energy, resulting in a reduction of emissions. This has increased product yield and improved quality.
What do you learn from that the introduction of basic-oxygen steel-making has reduced the amounts to be exhausted, and that the use of the continuous-casting process has resulted in a reduction of emissions?