Category: Economics

9. Interest, inflation, and purchasing power
Suppose Damaris is a fashionista and buys only denim jackets. Damaris deposits $2,000 into a savings account that pays an annual nominal interest rate of 20%. Assume this interest rate is fixed, and so it will not change over time. On the day she makes her deposit, suppose that a denim jacket has a price of $20.00. Initially, Damaris’s $2,000 deposit has a purchasing power of denim jackets.
For each of the annual inflation rates given in the following table, first determine the new price of a denim jacket, assuming it rises at the rate of inflation. Then enter the corresponding purchasing power of Damaris’s deposit after one year in the first row of the table for each inflation rate. Finally, enter the value for the real interest rate at each of the given inflation rates.
Hint: Round your answers in the first row down to the nearest denim jacket. For example, if you find that the deposit will cover 20.7 denim jackets, you would round the purchasing power down to 20 denim jackets under the assumption that Damaris will not buy seven-tenths of a denim jacket. When the rate of inflation is greater than the interest rate on Damaris’s deposit, the purchasing power of her deposit over the course of the year.

The blue curve on the following graph represents the demand curve facing a firm that can set its own prices. Use the graph input tool to help you answer the following questions. You will not be graded on any changes you make to this graph. Note: Once you enter a value in a white field, the graph and any corresponding amounts in each grey field will change accordingly.
On the graph input tool, change the number found in the Quantity Demanded field to determine the prices that correspond to the production of 0, 10, 20, 25, 30, 40, and 50 units of output. Calculate the total revenue for each of these production levels. Then, on the following graph, use the green points (triangle symbol) to plot the results.
Calculate the total revenue if the firm produces 10 versus 9 units. Then, calculate the marginal revenue of the 10th unit produced. The marginal revenue of the 10 th unit produced is
Calculate the total revenue if the firm produces 20 versus 19 units. Then, calculate the marginal revenue of the 20th unit produced. The marginal revenue of the 20th unit produced is
Based on your answers from the previous question, and assuming that the marginal revenue curve is a straight line, use the black line (plus symbol) to plot the firm’s marginal revenue curve on the following graph.

Monopsony basics
Consider a newspaper in a small town that has monopsony power in hiring journalists. The following table shows the labor hours that will be supplied at each of the given hourly wages, as well as the total cost of labor at each quantity of labor. Suppose the newspaper’s demand for labor as a function of the marginal value product of labor (MVP
L
) is given by L = 8 – MVP
L
/3. Compute the marginal expense (ME
L
) and marginal value product (MVP
L
) of adding an additional hour at each quantity and enter the values into the following table. (circle symbol) to plot the firm’s demand for labor as a function of the MVP
L
.
Which of the following explains why the ME
L
curve lies above the labor supply curve?
Each worker must be paid benefits In addition to the wage rate.
The firm faces a downward-sloping demand curve in the market for newspapers.
Each additional unit of labor has a lower marginal product than the previous one.
The marginal cost of hiring an additional unit of labor Includes not only that unit of labor’s wage but also an increase in the wages of all the other units of labor.
To maximize profits, the firm will hire r and pay a wage of per hour, which is v the marginal value product of the final unit of labor hired.

Module One QuitAttempts ◻ Keep the Highest / 23. Agreement and disagreement among economists
Suppose that Paolo, an economist from a research facility in Washington, and Sharon, another economist from an investigative reporting group, are both guests on a popular science podcast. The host of the podcast is faciliating their debate over budget deficts. The following dialogue represents a portion of the transcript of their discussion:
Sharon:
Most people recognize that the budget deficit has been rising considerably over the last century. Wite need to find the best course of action to remedy this situation.
Paolo:
I believe that a cat in income tax rates would boost economic growth and raise tax revenue enough to reduce budget defles.
Sharon:
I actually feel that raising the top income tax rate would reduce the budget deficit more elfectively.
The disagreement between these economists is most likely due to q,Despite their differences, with which proposition are two economists chosen at random most likely to agree?
Business managers can raise profit more easily by reducing costs than by raising revenue.
Central banks should focus more on maintaining low unemployment than on maintaining low iffuction.
Employers should not be restricted from outsourcing work to foreign nations.

Andy and Chris work together at a bakery, making lemonade and iced tea. Andy can make 35 cups of lemonade per hour, 25 cups of iced tea per hour, or a combination of both. Chris can make 16 cups of lemonade per hour, 20 cups of iced tea per hour, or a combination of both. Fill in the blanks for the statements below. If your answer is a number, put it as a decimal. For example, if your answer is 4/3, you should put 1.33. If your answer is a name, spell it exactly as above.
Andy’s opportunity cost of 1 cup of lemonade is ____ cups of iced tea.
Andy’s opportunity cost of 1 cup of iced tea is ____ cups of lemonade.
Chris’s opportunity cost of 1 cup of lemonade is ____ cups of iced tea.
Chris’s opportunity cost of 1 cup of iced tea is ____ cups of lemonade.
____ has the absolute advantage in making lemonade.
____ has the absolute advantage in making iced tea.
____has the comparative advantage in making lemonade.
____has the comparative advantage in making iced tea.
Suppose Andy and Chris are not specialized. Andy is making 21 cups of lemonade and 10 cups of iced tea per hour. Chris is making 12 cups of lemonade and 5 cups of iced tea per hour. If Andy and Chris fully specialize, they will all together make ____ more cups of lemonade per hour and ____ more cups of iced tea per hour.

As the GATT and WTO have evolved, the trade rounds have become:
Stayed about the same in length of negotiating time
Shorter in length of negotiating time
Longer in length of negotiating time
Flag question: Question 3 — 0.1 pts
The WTO seeks to promote economic stability and prevent crises; to help resolve crises when they do occur; to promote growth and alleviate poverty; and monitor national monetary systems (surveillance).
True
False
Flag question: Question 4 — 0.1 pts
Some of the harshest critics of organizations such as the WTO, IMF, and World Bank have been Europeans, Wall Street and Neoliberals.
True
False
Flag question: Question 5 — 0.1 pts
Which of the following organizations is an IGO dealing with trade?
ITU
IAEA
WTO
IMF
Flag question: Question 6 — 0.1 pts
Congress approved GATT in 1947.
True
False
Flag question: Question 7 — 0.1 pts
The IMF is essentially the central bank to the world, with a managing director who is always a European.
True
False
Flag question: Question 8 — 0.1 pts
The IMF lends money on a short term basis to stabilize a country’s economy, but it does so with requirements called

Why do firms offer efficiency wages? (a) In order to Increase the number of employees (b) In order to cause involuntary unemployment (e) In order to pay employees a higher wage so they are not indifferent about leaving the firm (d) All are reasons firms offer efficiency wages
The AD curve is a function of (a) Expected Inflation (b) Oil Prices (c) Consumption Behavior (d) All of above
Money demand is a function of (a) the risk free interest rate (b) income (e) financial risk (d) All of the above
The labor demand curve would be upward sloping if (a) there was decreasing marginal product of labor. (b) there was increasing marginal product of capital. (c) there was increasing marginal product of labor. (d) there was constant marginal products of labor and capital.
TRUE or FALSE: Investment always equals Savings in the Classical Model? (a) True. (b) False.
TRUE or FALSE: When the LM curve shifts the AD curve always shifts as well. (a) True. (b) False
TRUE OR FALSE: When the IS curve shifts the AD curve always shifts in the same direction. (a) True. (b) False
TRUE or FALSE: Wages (IP) is a nominal variable in our AS/AD model. (a) True. (b) False
TRUE or FALSE: endogenous capital implies that LRAS is a function of Is. (a) True (b) False