Describe the economic growth that influence the living standard of people.

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Answer 1

Question

Chapter 16, Problem 1CQ

To determine

Describe the economic growth that influence the living standard of people.

Expert Solution & Answer

Explanation of Solution

According to the economist Robert Lucas, to achieve the growth of real income, the growth of real output is essential. Hence, without achieving the growth of real output, the household would not achieve higher income and standards of living.

Suppose the growth of the economy increases, it would lead to an increase in the production possibilities such as efficiency in technological progress, significant allocation of goods and services, and the improvement in efficient and sufficient labor and capital. Due to an increase in the production possibilities, the economy will achieve a higher per capita real GDP. A higher per capita GDP implies that the per capita income of the individual becomes high. Hence, with high income, the households improve their standard of living.

According to the rule of 70, if the economic growth is 2 percent, it will take 35 years (702) to increase the income level. If the economic growth is 4 percent, it will take 17.5 years (704) to increase the income level. Therefore, if the economic growth increases from 2 percent to 4 percent, it will take less number of years to double the income. Therefore, it makes much difference when an economy grows at 2 percent or 4 percent annually.

Economics Concept Introduction

Rule of 70: The rule of 70 explains how long it will take for a variable to double in size.

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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 16, Problem 1CQ

To determine

Describe the economic growth that influence the living standard of people.

Expert Solution & Answer

Explanation of Solution

According to the economist Robert Lucas, to achieve the growth of real income, the growth of real output is essential. Hence, without achieving the growth of real output, the household would not achieve higher income and standards of living.

Suppose the growth of the economy increases, it would lead to an increase in the production possibilities such as efficiency in technological progress, significant allocation of goods and services, and the improvement in efficient and sufficient labor and capital. Due to an increase in the production possibilities, the economy will achieve a higher per capita real GDP. A higher per capita GDP implies that the per capita income of the individual becomes high. Hence, with high income, the households improve their standard of living.

According to the rule of 70, if the economic growth is 2 percent, it will take 35 years (702) to increase the income level. If the economic growth is 4 percent, it will take 17.5 years (704) to increase the income level. Therefore, if the economic growth increases from 2 percent to 4 percent, it will take less number of years to double the income. Therefore, it makes much difference when an economy grows at 2 percent or 4 percent annually.

Economics Concept Introduction

Rule of 70: The rule of 70 explains how long it will take for a variable to double in size.

Want to see more full solutions like this?

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

Answer 3

Question

Chapter 16, Problem 1CQ

To determine

Describe the economic growth that influence the living standard of people.

Expert Solution & Answer

Explanation of Solution

According to the economist Robert Lucas, to achieve the growth of real income, the growth of real output is essential. Hence, without achieving the growth of real output, the household would not achieve higher income and standards of living.

Suppose the growth of the economy increases, it would lead to an increase in the production possibilities such as efficiency in technological progress, significant allocation of goods and services, and the improvement in efficient and sufficient labor and capital. Due to an increase in the production possibilities, the economy will achieve a higher per capita real GDP. A higher per capita GDP implies that the per capita income of the individual becomes high. Hence, with high income, the households improve their standard of living.

According to the rule of 70, if the economic growth is 2 percent, it will take 35 years (702) to increase the income level. If the economic growth is 4 percent, it will take 17.5 years (704) to increase the income level. Therefore, if the economic growth increases from 2 percent to 4 percent, it will take less number of years to double the income. Therefore, it makes much difference when an economy grows at 2 percent or 4 percent annually.

Economics Concept Introduction

Rule of 70: The rule of 70 explains how long it will take for a variable to double in size.

Want to see more full solutions like this?

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

Answer 4

Question

Chapter 16, Problem 1CQ

To determine

Describe the economic growth that influence the living standard of people.

Expert Solution & Answer

Explanation of Solution

According to the economist Robert Lucas, to achieve the growth of real income, the growth of real output is essential. Hence, without achieving the growth of real output, the household would not achieve higher income and standards of living.

Suppose the growth of the economy increases, it would lead to an increase in the production possibilities such as efficiency in technological progress, significant allocation of goods and services, and the improvement in efficient and sufficient labor and capital. Due to an increase in the production possibilities, the economy will achieve a higher per capita real GDP. A higher per capita GDP implies that the per capita income of the individual becomes high. Hence, with high income, the households improve their standard of living.

According to the rule of 70, if the economic growth is 2 percent, it will take 35 years (702) to increase the income level. If the economic growth is 4 percent, it will take 17.5 years (704) to increase the income level. Therefore, if the economic growth increases from 2 percent to 4 percent, it will take less number of years to double the income. Therefore, it makes much difference when an economy grows at 2 percent or 4 percent annually.

Economics Concept Introduction

Rule of 70: The rule of 70 explains how long it will take for a variable to double in size.

Want to see more full solutions like this?

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

Answer 5

Chapter 16, Problem 1CQ

To determine

Describe the economic growth that influence the living standard of people.

Expert Solution & Answer

Explanation of Solution

According to the economist Robert Lucas, to achieve the growth of real income, the growth of real output is essential. Hence, without achieving the growth of real output, the household would not achieve higher income and standards of living.

Suppose the growth of the economy increases, it would lead to an increase in the production possibilities such as efficiency in technological progress, significant allocation of goods and services, and the improvement in efficient and sufficient labor and capital. Due to an increase in the production possibilities, the economy will achieve a higher per capita real GDP. A higher per capita GDP implies that the per capita income of the individual becomes high. Hence, with high income, the households improve their standard of living.

According to the rule of 70, if the economic growth is 2 percent, it will take 35 years (702) to increase the income level. If the economic growth is 4 percent, it will take 17.5 years (704) to increase the income level. Therefore, if the economic growth increases from 2 percent to 4 percent, it will take less number of years to double the income. Therefore, it makes much difference when an economy grows at 2 percent or 4 percent annually.

Economics Concept Introduction

Rule of 70: The rule of 70 explains how long it will take for a variable to double in size.

Answer 6

Chapter 16, Problem 1CQ

To determine

Describe the economic growth that influence the living standard of people.

Expert Solution & Answer

Explanation of Solution

According to the economist Robert Lucas, to achieve the growth of real income, the growth of real output is essential. Hence, without achieving the growth of real output, the household would not achieve higher income and standards of living.

Suppose the growth of the economy increases, it would lead to an increase in the production possibilities such as efficiency in technological progress, significant allocation of goods and services, and the improvement in efficient and sufficient labor and capital. Due to an increase in the production possibilities, the economy will achieve a higher per capita real GDP. A higher per capita GDP implies that the per capita income of the individual becomes high. Hence, with high income, the households improve their standard of living.

According to the rule of 70, if the economic growth is 2 percent, it will take 35 years (702) to increase the income level. If the economic growth is 4 percent, it will take 17.5 years (704) to increase the income level. Therefore, if the economic growth increases from 2 percent to 4 percent, it will take less number of years to double the income. Therefore, it makes much difference when an economy grows at 2 percent or 4 percent annually.

Economics Concept Introduction

Rule of 70: The rule of 70 explains how long it will take for a variable to double in size.

Answer 7

Chapter 16, Problem 1CQ

To determine

Describe the economic growth that influence the living standard of people.

Answer 8

Expert Solution & Answer

Explanation of Solution

According to the economist Robert Lucas, to achieve the growth of real income, the growth of real output is essential. Hence, without achieving the growth of real output, the household would not achieve higher income and standards of living.

Suppose the growth of the economy increases, it would lead to an increase in the production possibilities such as efficiency in technological progress, significant allocation of goods and services, and the improvement in efficient and sufficient labor and capital. Due to an increase in the production possibilities, the economy will achieve a higher per capita real GDP. A higher per capita GDP implies that the per capita income of the individual becomes high. Hence, with high income, the households improve their standard of living.

According to the rule of 70, if the economic growth is 2 percent, it will take 35 years (702) to increase the income level. If the economic growth is 4 percent, it will take 17.5 years (704) to increase the income level. Therefore, if the economic growth increases from 2 percent to 4 percent, it will take less number of years to double the income. Therefore, it makes much difference when an economy grows at 2 percent or 4 percent annually.