SECTION A The following economy applies to questions 1-3. Assume an economy in which the con-sumption (C) and investment (I) functions are given byC = 100 + 0.5 · (Y – T)I = 500 – 1000 -rwhere Y is real output and r is the real interest rate. Government purchases and taxes areĞ = 500, Ť = 100.The LM (money market equilibrium) curve isMY%3DP5iwhere P is the price level and i is the nominal interest rate. The Central Bank (CB) is initially supplyingM = 8000 units of money, and expected inflation is n° = 0.Assume that the long-run equilibrium level of output is Ý = 2000. Short-run equilibrium output is initiallyat the same level (Y = 2000).Suddenly, news of a new world-beating super-vaccine raises expected inflation to nº = 0.05.Question 1 Derive the long-run equilibrium values of output Y, consumption C, private and publicsavings Sprivate and Spublic, investment I, the real and nominal interest rates (r, i) and price P, before andafter the vaccine news shock. In particular:1. Explain how the long-run values of (r, i) are determined before the vaccine news shock.2. Which, if any, of the graphs from Appendix A best depicts the long-run change in the interest rate(s)due to the vaccine news shock? Explain.3. Explain how the long-run values of (Y, P) are determined before the vaccine news shock. Appendix A Graphs for Q1.2RealInterestRateRealInterestRateI(r)rr'I(r)r'I(r)'Savings/InvestmentSavings/InvestmentSS'(a)(b)RealNominalISIS'InterestISIS'InterestRateRateLMLMr'i'i=rrr'GDPGDPYY'YY'(c)(d)

The IS curve establishes a relation between income level and interest rate for the commodity market…

1. Explain how the long-run values of (r, i) are determined before the vaccine news shock. 2. Which, if any, of the graphs from Appendix A best depicts the long-run change in the interest rate(s) due to the vaccine news shock? Explain. 3. Explain how the long-run values of (Y, P) are determined before the vaccine news shock.

1. Explain how the long-run values of (r, i) are determined before the vaccine news shock. 2. Which, if any, of the graphs from Appendix A best depicts the long-run change in the interest rate(s) due to the vaccine news shock? Explain. 3. Explain how the long-run values of (Y, P) are determined before the vaccine news shock.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Similar questions

Q37 Consider a vaccination programme that is fully effective if everybody is vaccinated. Now suppose that all but one are vaccinated and, as a result, that one person will not contract the virus. This situation is called... a. The common property problem. b. Moral hazard. c. Adverse selection. d. The free-rider problem. e. Asymmetric information. Clear my choice
Suppose a vaccine for covid-19 is found in the next 18 months, what effect would this have on the LRAS curve over period of crisis?
Now consider a different insurance company that does not have the inclination to tailor contracts specifically to individuals. Instead, it will offer a “standard contract” with the premium r =$100 and payout q=$500 to anyone who will purchase it. a. Peter has healthy-state income IH = $500 and sick-state income IS = $0. He has probability of illness p=0.1. Is the standard contract fair and/or full for Peter? If he ends up getting sick, what will his final income be? b. Tim has IH = $500 and IS = $0, but a probability of illness p = 0.2, higher than Peter’s. Is the standard contract fair and/or full for Tim? How does purchasing the standard contract affect Tim’s expected income?c. Jay has IH =$1, 000 and IS =$0, with probability of illness p=0.2. Is the standard contract fair and/or full for Jay?d. Suppose there is a customer named Ronald for whom the standard contract is partial and actuarially unfair in the insurance company’s favor. Give a set of possible values for Ronald’s IH, IS,…
It is not unusual for a country like ours, Philippines, to be hit by disasters like hurricanes. Whenever a disaster strikes some regions, many products in the market experience price hike due to the sudden increase in the demand or decrease in supply. Why do economists consider this market activity admirable from a moral perspective and why do they see goods priced low during these times is a problem? And what are your opinions about this issue?
This question is broken into 4 parts. Please answer all parts. A. Explain the relation between moral hazard and insurance premiums. B. Now think about how people with different health risks assess insurance products with a given deductible, and explain how supporters of minimizing adverse selection should think about a proposal (say from Bernie Sanders) that all insurance policies should have zero deductibles and coinsurance. C. Does community rating make the policy tradeoffs inherent in b harder or easier to manage? D. Would a purchase mandate make the policy tradeoffs inherent in b + c harder or easier to manage?
List two possible solutions private insurance firms have at their disposal to correct the market failure due to the asymmetry of information...
a) Suppose an insurance company decides to insure the earnings obtained by a professional tennis player (in the event of an injury), provided she does not engage in activities like skydiving or skiing. Which asymmetric information problem is the insurance company trying to avoid? b) How do insurance companies protect themselves against losses due to adverse selection and moral hazard? c) How do insurance companies price their products to solve the problem of asymmetric information?
The blue curve on the following graph shows the tradeoff between security and tourism; that is, combinations of security and tourism above the blue curve are not possible, and those on or below the curve are possible. The vertical axis measures security, defined as the probability that a terrorist is intercepted before entering the country. The horizontal axis measures the number of yearly visitors to the United States, in millions. Suppose that before 9/11, there were 55 million visitors per year, and the probability of intercepting any particular terrorist at customs and immigration was 10%, as indicated by the purple point (diamond symbol). After the 9/11 attacks, a debate is held in Congress. Members of both parties agree that security measures need to be improved. However, there is some disagreement as to how much additional security is needed. Suppose the first bill that is introduced mandates that security be improved so that the probability of catching a terrorist at the border…
When a portfolio has a known future date for a particular outlay to occur, it is most likely that ___________ will be used by the portfolio manager as part of their immunisation strategy. a. Net Worth Immunisation b. Classical Immunisation c. Tools of Immunisation d. Contingent Immunisation e. Target Date Immunisation
Hello, this a follow up just to remind you I need this fully answered. Here is what needs to be answered: H. You pay Alamo Colleges $1200 tuition for classes you took during 2020 ____________________________ I. The federal government sends Nruce Borton a social security check for $600 during 2020. _______________________________ J. The San Antonio Independent School District pays Ricki Kicker $55,000 for teaching high school in 2020. __________________________ - Explain why the Government Spending (G) component of GDP falls short of actual (total) government outlays or expenditures. - If Depreciation = $479 Gross private domestic Investment (I) = $716 Government spending = $924 Imports = $547 Personal Consumption Expenditures = $2,966 Exports = $427 a. How big is the GDP? b. How big is National Income?
Priyanka has an income of £90,000 and is a von Neumann-Morgenstern expected utility maximiser with von Neumann-Morgenstern utility index . There is a 1 % probability that there is flooding damage at her house. The repair of the damage would cost £80,000 which would reduce the income to £10,000. a) Would Priyanka be willing to spend £500 to purchase an insurance policy that would fully insure her against this loss? Explain. b) What would be the highest price (premium) that she would be willing to pay for an insurance policy that fully insures her against the flooding damage?
6. Answer which happens, moral hazard or adverse selection, or nothing happens under each of the following situations. [M20]: A driver drives a car rough because s/he has a property insurance of a car. b. Adverse selection [M21]: Since a driver cannot distinguish among qualities of cars, s/he may buy a bad one. a. Moral hazard c. nothing a. Moral hazard b. Adverse selection c. nothing [M22]: Banks look for lenders, but most customers who apply for loans seem to have difficulty repaying them even in assuming they make an identical effort. a. Moral hazard b. Adverse selection c. nothing