Tag: Economics – Others

a. The financial crisis of 2007–2008 was exacerbated by subprime mortgage loans. These loans were made to borrowers multiple choice 1
purchasing low-priced homes.
who were not first-time home buyers.
more likely to default on their loans.
at exceptionally low rates.
b. Subprime mortgage loans were one of the factors that exacerbated the financial crisis of 2007–2008. These loans resulted in multiple choice 2
too many lenders competing for the same loan business.
too much refinancing on the part of current home owners.
an increase in the supply of housing and a rapid, sustainable increase in home prices.
an increase in demand for housing and a rapid, unsustainable increase in home prices.
c. Mortgage-backed securities were one of the factors that exacerbated the financial crisis of 2007–2008 because multiple choice 3
they changed the risk exposure that banks faced after issuing subprime loans, which discouraged this type of lending.
they reduced the regulation that banks faced after issuing subprime loans, and encouraged this type of lending.
they increased the risk exposure that banks faced after issuing subprime loans, which discouraged this type of lending.
they reduced the risk exposure that banks faced after issuing subprime loans, and encouraged this type of lending.
d. James borrows $300,000 for a home from Bank A. Bank A resells the right to collect on that loan to Bank B. Bank B securitizes that loan with hundreds of others and sells the resulting security to a state pension plan, which at the same time purchases an insurance policy from AIG that will pay off if James and the other people whose mortgages are in the security can’t pay off their mortgage loans. Suppose that James and all the other people can’t pay off their mortgages. Which financial entity is legally obligated to suffer the loss?

Suppose there exist two imaginary countries, Everglades and Yosemite. Their labor forces are each capable of supplying four million hours per week that can be used to produce pistachios, chinos, or some combination of the two. The following table shows the amount of pistachios or chinos that can be produced by one hour of labor.
Production per hour of labor
Country
Pistachios (Pounds per hour of labor)
Chinos (Pairs per hour of labor)
Everglades
4
16
Yosemite
6
12
Suppose that initially Yoremite uses 1 million hours of labor per week to produce pistachios and 3 million hours per week to produce chinos, while Everglades uses 3 million hours of labor per week to produce pistachios and 1 million hours per week to produce chinos. As a result, Everglades produces 12 million pounds of pistachios and 16 million pairs of chinos, and Yosemite produces 6 million pounds of pistachios and 36 million pairs of chinos. 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 pistachios and chinos it produces.
Everglades’s opportunity cost of producing 1 pound of pistachios is ◻ of chinos, and Yosemite’s opportunity cost of producing 1 pound of pistachios is ◻ of chinos. Therefore, ◻ has a comparative advantage in the production of pistachios, andq, has a comparative advantage in the production of chinos.
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 pistachios will produce ◻ million pounds per week, and the country that produces chinos will produce◻ million pairs per week.
In the following table, enter each country’s production decision on the third row of the table (marked

TRUE-FALSE-UNCERTAIN (5: 1 each)For each of the following claims, indicate whether it is true or false, or whether it could be either one, depending on circumstances. Then, explain why. Your grade will depend on your explanation. Try to make sure your explanation is not only correct but thorough. Doing this will prepare you better for the tests. An answer with no explanation will get zero credit, even if the answer is correct.
Suppose that 10 years ago, the Mexican Peso/US dollar nominal exchange rate was 10 and that it is 15 today. Also, suppose that inflation over this period was 25% in the US and 100% in Mexico. Claim: It is more expensive to travel in Mexico now than it was 10 years ago. (Hint 1: A foreign nation is more expensive if the home nation real exchange rate is lower. Hint 2: Set the initial price levels in each nation to 1.)
Suppose that the Book Section 8.1 Solow model applies and that an economy is initially in the steady state. Claim: A saving rate drop causes the marginal product of capital per worker and the growth rate of output per worker to be lower in the new steady state.
Suppose that: 1) Our Book Section 8.1 Solow model applies to a nation; 2) It gets hit by a devastating hurricane that causes people to leave for good, thus dropping L for good; 3) Nothing else relevant to the model changes. Claim: This population drop will boost y in the short run but shrink y in the long run.
Claim: In the Chapter 8 Solow model, a rise in the saving rate boosts the steady state per worker values of income and consumption.
Claim: If Y=AKαL1-α, then sgold =α. (Hint: To see whether this claim is true, recall that sgold is the value of s that maximizes c**. So, you will want to get a formula for c** in terms of s and the two other exogenous parameters, α and δ, and then maximize with respect to s.)

· Do any t-test at the 10% level and be sure to show critical t value used and the t value against which it was compared.
1.
A researcher ran the following regression for annual sales of A.H. Studenmund econometrics textbooks (the one we use!):
(1) QUANTITYt = 7.6 + 1.00*PRICEt + 6.00*PRICE_SUBt + et
(1.34) (6.31)adj-R2 = 0.688; numbers in parentheses are t scores where: Quantity = quantity of A.H. Studenmund textbooks soldPrice = average price (in tens of dollars) of A.H. Studenmund textbooks;Price_Sub = average price (in tens of dollars) of other econometrics textbooks sold.The study covered the years 1985 through 2010 (inclusive—26 years).
a. Very carefully explain the meaning of each of the slope coefficients. (2 pts)
b. Hypothesize signs and conduct the appropriate t tests. (2.5 pts)
c. If the measurement of Quantity were changed to 100s of textbooks rather than textbooks, how would the coefficients change? How will the adj-R2 change? How will the t-values change? Be very specific. (2.5 pts)
d. If, instead, the measurement of Price_Sub was changed to dollars rather than tens of dollars, how would the coefficients in equation (1) change? Be very specific. (1.5 pts)
e. Should a stochastic error term be included in equation (1)? (1 pt)
f. Is that adjusted R2 generally considered relatively high or relatively low? Explain. (1 pt)
g. A different researcher also ran regression (1) but for 1970 to 1984 and got a larger number for the coefficient on Price_Sub. Which results are more likely to have been biased, the more recent ones or the older ones? Explain. (1 pt)
h. Please discuss the results. Any problems and, if so, how would you try to correct it/them? (2 pts)

The Federal Open Market Committee (FOMC) is focused on its dual mandate of achieving maximum employment and stable prices. Currently, the U.S. economy is strong, with a low unemployment rate of 4.2% indicating near-maximum employment. Inflation has decreased significantly since mid-2022 but remains slightly above the 2% target, with total personal consumption expenditures or (PCE) prices rising 2.3% and core PCE prices rising 2.6% over the past year. Despite uncertainties, especially from trade policy changes, the FOMC has kept the policy interest rate unchanged, believing it is well-positioned for future economic developments.
Additionally, consumer spending growth has slowed, but private domestic final purchases and investment in equipment and intangibles have rebounded. Moreover, the labor market is not significantly contributing to inflationary pressures, and long-term inflation expectations are aligned with FOMC goals.
Furthermore, the FOMC maintains the federal funds rate target range at 4.25% to 4.5% and continues reducing the balance sheet while monitoring the potential impacts of new administration policies, such as tariffs, which could affect inflation, economic growth, and employment. With that being said, the committee is ready to adjust its policy stance based on economic changes and is conducting a review of its monetary policy framework, focusing on inflation dynamics, with the review expected to conclude by late summer.
The Federal Reserve remains committed with a particular focus on bringing inflation to its 2 percent target. Recent developments, such as changes in tariffs and legislative actions, have introduced uncertainty, impacting economic growth and employment. While the economy is resilient with solid growth and a strong labor market, inflation remains slightly above 2 percent.

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?

COMPARATIVE AND ABSOLUTE ADVANTAGES
Boards Waxed
Boards Repaired
Sean
7.5 min
20 min
Sadie
12 min
30 min
OPPORTUNITY COSTS
Question 5: Looking at the graph above, calculate the opportunity cost for Sean on boards waxed per hour. Sean’s opportunity cost for boards waxed is Enter a decimal number (ex. 1, 1.0, 10.01, . 1001)
Question 6: Looking at the graph above, calculate the opportunity cost for Sean on boards repaired per hour. Sean’s opportunity cost for boards repaired is W. Enter a decimal number (ex. 1, 1.0, 10.01, .1001)
Question 7: Looking at the graph above, calculate the opportunity cost for Sadie on boards waxed per hour. Sadie’s opportunity cost for boards waxed is R. Enter a decimal number (ex. 1, 1.0, 10.01, .1001)
Question 8: Looking at the graph above, calculate the opportunity cost for Sadie on boards repaired per hour. Sadie’s opportunity cost for boards repaired is N. Enter a decimal number (ex. 1, 1.0, 10.01, .1001)

6. Deriving the short-run supply curve
The following graph plots the marginal cost (MC) curve, averape total cost (ATC) curve, and average variable cost (ANC) curve for a firm sperating in the competitive market for snapback hats. For every price lever given in the following table, use the graph to determine the profic-manimising quantity of snapbacks for the flom. Further, select aweriage variable cost, the firm is indifferent between producing zero snapbacks and the profic-manimiang owantity of soapbacks.) Lastly, determine whather the firm unil elon a profic, neor a loss, or break even at ach price. Price (Dolfarsi per smapback) Quantity (Smapbacks)
On the following graph, uset the ovange points (square symbol) to plot paiges alang the portion of the firm’s short-rus supply curve that corresponds to pricas where there is pasitive output. (Note. For the graphing tool to grade correctly, you must plot che points in order from left to right, starting with the point closest to the arigin. You are given move paints to ploc that you fladd.) Suppose thare are 7 firms in this industry, each of which has the cost curves previously shomf. On the flollowing graph, use the ovange points (square symbol) to ploc painsts along the portion of the industry’s short-run supply curve that corresponds to prices where there ha pasitive output. (Note: For the graphing tool to grade correctly, pou must plot these poincs in arder from keft to right, starting with the point closist to the ovigin. Yow are given more poines to plot than you newd.) Next, place the black point (plus symbol) an the graph to indicate the short-rum equalitive price and quantity in thas market. Note: Darithed drop lines will automatically extend to both axes.

For each of the following scenarios, analyze the effects of the given supply or demand shock on the respective market. In your response, clearly identify whether the shock primarily affects supply or demand, how supply or demand changed, and explain the expected impact on equilibrium price and quantity, assuming other factors remain constant. Then illustrate the changes using the diagrams provided on the second page. In each diagram: Label the initial equilibrium price and quantity as P₁ and Q₁. Label the new equilibrium price and quantity after the shock as P₂ and Q₂. Links to relevant articles are given to provide additional context for each scenario. However, reviewing or referencing them in your answers is not required or expected.
Market: GLP-1s (e.g., Ozempic)
Shock: Recent findings show that GLP-1 receptor agonists, like Ozempic, are highly effective in treating diabetes and promoting weight loss. Relevant story here. Pharmacy in Focus: Navigating GLP-1 demand, cost, and sustainability | Evernorth
Market: Gasoline
Shock: OPEC Plus, the cartel of oil-producing countries, has announced an increase in oil production. Crude oil is the primary input in gasoline production. Relevant story here.
Market: Tesla Cars
Shock: Public perception of Tesla has been affected by Elon Musk’s political and social media activity, leading some consumers to reconsider their purchase of Tesla’s vehicles. Relevant story here.
Market: New Cars
Shock: The Trump Administration has announced plans to impose 25% tariffs on all foreign-made vehicles and auto parts. Relevant story here.

Following a report of higher prices (inflation) in country A (the domestic currency, CA), the balance of payments re-equilibration occurs in which order? – 1. 2. 3. 4. 5. 6. 7. 8.
Domestic agents increase their supply of the domestic currency (DC) in the FX market to trade (M) – 1. 2. 3. 4. 5. 6. 7. 8.
The DC depreciates from the current account – 1. 2. 3. 4. 5. 6. 7. 8.
The domestic interest in M increases (cheaper imports) – 1. 2. 3. 4. 5. 6. 7. 8.
Domestic agents decrease their interest in imports (M) since the relative price has increased (takes more DC to buy the FC to buy M) – 1. 2. 3. 4. 5. 6. 7. 8.
The DC depreciates from the current account as a part of the LR re-equilibration – 1. 2. 3. 4. 5. 6. 7. 8.
The DC appreciates (from the current account) – 1. 2. 3. 4. 5. 6. 7. 8.
Domestic agents decrease their supply of the domestic currency (DC) in the FX market since they buy fewer imports (M) – 1. 2. 3. 4. 5. 6. 7. 8.
The relative price (RP) of imports (M) dereases (i.e. it takes less DC to buy the FC to trade in the same amount of M)