Identify which option is the period of recession.

Question

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Answer 1

Question

Chapter 1, Problem 1QQ

To determine

Identify which option is the period of recession.

Expert Solution & Answer

Answer to Problem 1QQ

Option ‘b’ is the correct answer.

Explanation of Solution

Option (b):

Recession is massive reduction in the economic activity. During the recession, there would be lower demand that in turn reduces the output, employment, and income in the economy. Thus, during the recession, the income would fall. Thus, option (b) is correct.

Option (a):

When the economy is growing (boom), there is more demand for goods and services. This in turn increases the output, employment, and income in the economy. It indicates that income increases during the boom period. Thus, option (a) is incorrect.

Option (c):

When the overall price level of the economy continues to increase for a period of time, it affects the purchasing power of the consumer. This continuous increase in the price level in the economy is the period of inflation. Thus, option (c) is incorrect.

Option (d):

When the supply of goods is greater than the demand for goods, the price of those goods will continuously fall. When the overall price level of the economy continues to fall for a period of time, this is termed as period of deflation. Thus, option (d) is incorrect.

Economics Concept Introduction

Recession: Recession is a significant decline in activity across the economy, lasting longer than a few months.

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Students have asked these similar questions

5. Some people find options expensive and use more complex structures to reduce the cost. For example, consider buying a call with a strike of $55 and selling a call with a strike of $60. a. What is the cost of establishing this combined position? b. What is the payoff of the combined position if the market price goes to $60? c. What is the payoff of the combined position if the market price goes to $100?

3. An investor has $1,000 to invest. They believe the price of the underlier will increase to $60 within one year. a. How many shares of stock could they buy with the $1,000 at the current price of $50, and how much would they make if the share price increased to $60? b. How many calls with a strike of $55 could they buy for the same $1,000, and how much would they make if the share price increased to $60? c. How much would they make (or lose) from the stock and from the calls if the share price declined to $40? 4. What is the premium on a call with a strike of $0.01? Why is the premium so close to the $50 share price?

1. We want to examine the comparative statics of the Black Scholes model. Complete the following table using the Excel model from class or another of your choice. Provide the call premium and the put premium for each scenario. Underlier Risk-free Scenario price rate Volatility Time to expiration Strike Call premium Put premium Baseline $50 5% 25% 1 year $55 Higher strike $50 5% 25% 1 year $60 Higher volatility $50 5% 40% 1 year $55 Higher risk free $50 8% 25% 1 year $55 More time $50 5% 25% 2 years $55 2. Look at the baseline scenario. a. What is the probability that the call is exercised in the baseline scenario? b. What is the probability that the put is exercised? c. Explain why the probabilities sum to 1.

Answer 2

Question

Chapter 1, Problem 1QQ

To determine

Identify which option is the period of recession.

Expert Solution & Answer

Answer to Problem 1QQ

Option ‘b’ is the correct answer.

Explanation of Solution

Option (b):

Recession is massive reduction in the economic activity. During the recession, there would be lower demand that in turn reduces the output, employment, and income in the economy. Thus, during the recession, the income would fall. Thus, option (b) is correct.

Option (a):

When the economy is growing (boom), there is more demand for goods and services. This in turn increases the output, employment, and income in the economy. It indicates that income increases during the boom period. Thus, option (a) is incorrect.

Option (c):

When the overall price level of the economy continues to increase for a period of time, it affects the purchasing power of the consumer. This continuous increase in the price level in the economy is the period of inflation. Thus, option (c) is incorrect.

Option (d):

When the supply of goods is greater than the demand for goods, the price of those goods will continuously fall. When the overall price level of the economy continues to fall for a period of time, this is termed as period of deflation. Thus, option (d) is incorrect.

Economics Concept Introduction

Recession: Recession is a significant decline in activity across the economy, lasting longer than a few months.

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Answer 3

Question

Chapter 1, Problem 1QQ

To determine

Identify which option is the period of recession.

Expert Solution & Answer

Answer to Problem 1QQ

Option ‘b’ is the correct answer.

Explanation of Solution

Option (b):

Recession is massive reduction in the economic activity. During the recession, there would be lower demand that in turn reduces the output, employment, and income in the economy. Thus, during the recession, the income would fall. Thus, option (b) is correct.

Option (a):

When the economy is growing (boom), there is more demand for goods and services. This in turn increases the output, employment, and income in the economy. It indicates that income increases during the boom period. Thus, option (a) is incorrect.

Option (c):

When the overall price level of the economy continues to increase for a period of time, it affects the purchasing power of the consumer. This continuous increase in the price level in the economy is the period of inflation. Thus, option (c) is incorrect.

Option (d):

When the supply of goods is greater than the demand for goods, the price of those goods will continuously fall. When the overall price level of the economy continues to fall for a period of time, this is termed as period of deflation. Thus, option (d) is incorrect.

Economics Concept Introduction

Recession: Recession is a significant decline in activity across the economy, lasting longer than a few months.

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Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 4

Question

Chapter 1, Problem 1QQ

To determine

Identify which option is the period of recession.

Expert Solution & Answer

Answer to Problem 1QQ

Option ‘b’ is the correct answer.

Explanation of Solution

Option (b):

Recession is massive reduction in the economic activity. During the recession, there would be lower demand that in turn reduces the output, employment, and income in the economy. Thus, during the recession, the income would fall. Thus, option (b) is correct.

Option (a):

When the economy is growing (boom), there is more demand for goods and services. This in turn increases the output, employment, and income in the economy. It indicates that income increases during the boom period. Thus, option (a) is incorrect.

Option (c):

When the overall price level of the economy continues to increase for a period of time, it affects the purchasing power of the consumer. This continuous increase in the price level in the economy is the period of inflation. Thus, option (c) is incorrect.

Option (d):

When the supply of goods is greater than the demand for goods, the price of those goods will continuously fall. When the overall price level of the economy continues to fall for a period of time, this is termed as period of deflation. Thus, option (d) is incorrect.

Economics Concept Introduction

Recession: Recession is a significant decline in activity across the economy, lasting longer than a few months.

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Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 5

Chapter 1, Problem 1QQ

To determine

Identify which option is the period of recession.

Expert Solution & Answer

Answer to Problem 1QQ

Option ‘b’ is the correct answer.

Explanation of Solution

Option (b):

Recession is massive reduction in the economic activity. During the recession, there would be lower demand that in turn reduces the output, employment, and income in the economy. Thus, during the recession, the income would fall. Thus, option (b) is correct.

Option (a):

When the economy is growing (boom), there is more demand for goods and services. This in turn increases the output, employment, and income in the economy. It indicates that income increases during the boom period. Thus, option (a) is incorrect.

Option (c):

When the overall price level of the economy continues to increase for a period of time, it affects the purchasing power of the consumer. This continuous increase in the price level in the economy is the period of inflation. Thus, option (c) is incorrect.

Option (d):

When the supply of goods is greater than the demand for goods, the price of those goods will continuously fall. When the overall price level of the economy continues to fall for a period of time, this is termed as period of deflation. Thus, option (d) is incorrect.

Economics Concept Introduction

Recession: Recession is a significant decline in activity across the economy, lasting longer than a few months.

Answer 6

Chapter 1, Problem 1QQ

To determine

Identify which option is the period of recession.

Expert Solution & Answer

Answer to Problem 1QQ

Option ‘b’ is the correct answer.

Explanation of Solution

Option (b):

Recession is massive reduction in the economic activity. During the recession, there would be lower demand that in turn reduces the output, employment, and income in the economy. Thus, during the recession, the income would fall. Thus, option (b) is correct.

Option (a):

When the economy is growing (boom), there is more demand for goods and services. This in turn increases the output, employment, and income in the economy. It indicates that income increases during the boom period. Thus, option (a) is incorrect.

Option (c):

When the overall price level of the economy continues to increase for a period of time, it affects the purchasing power of the consumer. This continuous increase in the price level in the economy is the period of inflation. Thus, option (c) is incorrect.

Option (d):

When the supply of goods is greater than the demand for goods, the price of those goods will continuously fall. When the overall price level of the economy continues to fall for a period of time, this is termed as period of deflation. Thus, option (d) is incorrect.

Economics Concept Introduction

Recession: Recession is a significant decline in activity across the economy, lasting longer than a few months.

Answer 7

Chapter 1, Problem 1QQ

To determine

Identify which option is the period of recession.

Answer 8

Expert Solution & Answer

Answer to Problem 1QQ

Option ‘b’ is the correct answer.

Answer 9

Expert Solution & Answer

Answer 10

Expert Solution & Answer

Answer 11

Explanation of Solution

Option (b):

Recession is massive reduction in the economic activity. During the recession, there would be lower demand that in turn reduces the output, employment, and income in the economy. Thus, during the recession, the income would fall. Thus, option (b) is correct.

Option (a):

When the economy is growing (boom), there is more demand for goods and services. This in turn increases the output, employment, and income in the economy. It indicates that income increases during the boom period. Thus, option (a) is incorrect.

Option (c):

When the overall price level of the economy continues to increase for a period of time, it affects the purchasing power of the consumer. This continuous increase in the price level in the economy is the period of inflation. Thus, option (c) is incorrect.

Option (d):

When the supply of goods is greater than the demand for goods, the price of those goods will continuously fall. When the overall price level of the economy continues to fall for a period of time, this is termed as period of deflation. Thus, option (d) is incorrect.