PRINCIPLES OF MACROECONOMICS-CONNECT ACC
7th Edition
ISBN: 9781264088485
Author: Frank
Publisher: MCG
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Chapter 14, Problem 1RQ
To determine
Explain the
Expert Solution & Answer
Explanation of Solution
The demand for money refers to the amount of money that people choose to hold or the amount of money held by all wealth holder taken together. If the nominal interest rate increases, then the
In general, if the price level or income increases, then the volume of transaction increases and the benefit of holding money will increase.
Economics Concept Introduction
Money: Money refers to the medium of exchange in the form of paper, currency, and coins, which are used to make payment for all the commodities and services.
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Students have asked these similar questions
Problem 3
You are given the following demand for European luxury automobiles:
Q=1,000 P-0.5.2/1.6
where P-Price of European luxury cars
PA = Price of American luxury cars
P, Price of Japanese luxury cars
I= Annual income of car buyers
Assume that each of the coefficients is statistically significant (i.e., that they passed the t-test).
On the basis of the information given, answer the following questions
1. Comment on the degree of substitutability between European and American luxury cars and
between European and Japanese luxury cars. Explain some possible reasons for the results in
the equation.
2. Comment on the coefficient for the income variable. Is this result what you would expect?
Explain.
3. Comment on the coefficient of the European car price variable. Is that what you would expect?
Explain.
Problem 2:
A manufacturer of computer workstations gathered average monthly sales figures from its 56 branch
offices and dealerships across the country and estimated the following demand for its product:
Q=+15,000-2.80P+150A+0.3P+0.35Pm+0.2Pc
(5,234) (1.29) (175) (0.12) (0.17) (0.13)
R²=0.68 SER 786 F=21.25
The variables and their assumed values are
P = Price of basic model = 7,000
Q==Quantity
A = Advertising expenditures (in thousands) = 52
P = Average price of a personal computer = 4,000
P.
Average price of a minicomputer = 15,000
Pe Average price of a leading competitor's workstation = 8,000
1. Compute the elasticities for each variable. On this basis, discuss the relative impact that each
variable has on the demand. What implications do these results have for the firm's marketing
and pricing policies?
2. Conduct a t-test for the statistical significance of each variable. In each case, state whether
a one-tail or two-tail test is required. What difference, if any, does it make to…
You are the manager of a large automobile dealership who wants to learn more about the effective-
ness of various discounts offered to customers over the past 14 months. Following are the average
negotiated prices for each month and the quantities sold of a basic model (adjusted for various
options) over this period of time.
1. Graph this information on a scatter plot. Estimate the demand equation. What do the
regression results indicate about the desirability of discounting the price? Explain.
Month
Price
Quantity
Jan.
12,500
15
Feb.
12,200
17
Mar.
11,900
16
Apr.
12,000
18
May
11,800
20
June
12,500
18
July
11,700
22
Aug.
12,100
15
Sept.
11,400
22
Oct.
11,400
25
Nov.
11,200
24
Dec.
11,000
30
Jan.
10,800
25
Feb.
10,000
28
2. What other factors besides price might be included in this equation? Do you foresee any
difficulty in obtaining these additional data or incorporating them in the regression analysis?
Chapter 14 Solutions
PRINCIPLES OF MACROECONOMICS-CONNECT ACC
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