Pearson eText Macroeconomics -- Instant Access (Pearson+)
Pearson eText Macroeconomics -- Instant Access (Pearson+)
13th Edition
ISBN: 9780136879503
Author: Michael Parkin
Publisher: PEARSON+
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Chapter 14, Problem 3SPA

(a)

To determine

Explain the Fed’s control over the quantity of money in terms of the Federal Reserve Act of 2000.

(b)

To determine

Identify how the massive changes in monetary base resulting from QE and QT reconciled with the Federal Reserve Act of 2000.

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Exercise 6 Imagine that you head production of a multinational food processing company. The ongoing uncer- tainty about costs means that you are unsure of the future cost of one of your inputs, x2. Your firm's production function is y = f(x1, x2) = x²x²² The output price p is 1000, x1 = 27, and wx₁ = 60. 1. Suppose the current input price is Wx2 = 50. Solve for the optimal choice of x2. 2. Now suppose that the probability the input price remains 50 is 0.65 and the probability that Wx2 60 is 0.35. Solve for the optimal choice of x2. Round down to the nearest integer. = 3. Finally, suppose the costs do actually rise, i.e., Wx2 = 60. Calculate the difference in profit from the uncertainty in (2) vs. the certainty in (1).
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