Principles of Economics 2e
2nd Edition
ISBN: 9781947172364
Author: Steven A. Greenlaw; David Shapiro
Publisher: OpenStax
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Textbook Question
Chapter 14, Problem 12RQ
What determines the
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Question Seven
There are specific applications of the hidden-action or moral hazard model. Consider employment
contracts signed between a firm's owners and a manager who runs the firm on behalf of the
owners. The manager is offered an employment contract which they can accept and decide how
much effort, e ≥ 0, to exert. Suppose that an increase in effort, e, increases the firm's gross profit,
not including payments to the manager, but is personally costly to the manager and the firm's gross
profit, Пg, takes the following form: Пg = e +ε, ε~N(0,2). Let s denote the salary, which may
depend on effort and/or gross profit, depending on what the owner can observe, offered as part of
the contract between the owner and manager. Suppose that the manager is risk averse and has a
utility function with respect to salary of the form:
Aσ²
U(W)=μ- 2
a) Derive the optimal result of the owner's expected net profit where there is full information and
state what it implies.
b) Suppose now that the…
1. The IS/MP model assumes that the Fed sets the real interest rate at a given level Rt. Suppose the Fed
adopts a monetary policy rule that instructs it how to change the real interest rate in response to short-run
output. Let's call this a monetary policy rule (MPR):
The parameter x is positive.
Rt=+xY
a) Redraw the IS/MP diagram replacing the MP curve with the MPR curve. Show how an
aggregate demand shock affects output and interest rates in the short run. Use the IS and MPR equations
to solve for the changes in output and the real interest rate.
b) How does the change in a affect investment in the IS/MPR model? Explain how a tax cut
affects short-run output and investment in this version of the short-run model. The effect on investment is
called crowding out.
c) Add the Phillips curve to complete the short-run model. Illustrate how the Fed's choice of large
it makes reveals its trade off between inflation and output in the short run.
not use ai please
Chapter 14 Solutions
Principles of Economics 2e
Ch. 14 - Table 14.10 shows levels of employment (Labor),...Ch. 14 - Table 14.11 shows levels of employment (Labor),...Ch. 14 - Table 14.12 shows the quantity demanded and...Ch. 14 - Do unions typically oppose new technology out of a...Ch. 14 - Compared with the share of workers in most other...Ch. 14 - Are firms with a high percentage of union...Ch. 14 - D0 countries with a higher percentage of unionized...Ch. 14 - Table 14.13 shows information from the supply...Ch. 14 - Explain i11each of the following situations how...Ch. 14 - Does the earnings gap between the average wages of...
Ch. 14 - If immigration is reduced, what is the impact on...Ch. 14 - What determines the demand for labor for a firm...Ch. 14 - What determines the demand for labor for a firm...Ch. 14 - What is a perfectly competitive labor market?Ch. 14 - What is a labor union?Ch. 14 - Why do employers have a natural advantage in...Ch. 14 - What are some of the most important laws that...Ch. 14 - How does the presence of a labor union change...Ch. 14 - What is the long-term trend in American union...Ch. 14 - Would you expect the presence of labor unions to...Ch. 14 - What are the main causes for the recent [tends in...Ch. 14 - What is a monopsony?Ch. 14 - What is the marginal cost of labor?Ch. 14 - How does monopsony affect the equilibrium wage and...Ch. 14 - What is a bilateral monopoly?Ch. 14 - How does a bilateral monopoly affect the...Ch. 14 - Describe how the earnings gap between men and...Ch. 14 - Describe how the earnings gap between blacks and...Ch. 14 - Does a gap between the average earnings of men and...Ch. 14 - Will a free market tend to encourage or discourage...Ch. 14 - What policies, when used together with...Ch. 14 - Describe how affirmative action is applied in the...Ch. 14 - What factors can explain the relatively small...Ch. 14 - Have levels of immigration to the United States...Ch. 14 - How would you expect immigration by primarily...Ch. 14 - What is the marginal cost of labor for a firm that...Ch. 14 - Given the decline in union membership over the...Ch. 14 - Are unions and technological improvements...Ch. 14 - Will union membership continue to decline? Why or...Ch. 14 - If it is not profitable to discriminate, why does...Ch. 14 - If a company has discriminated against minorities...Ch. 14 - If the United States allows a greater quantity of...Ch. 14 - If all countries eliminated all barriers to...
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