EBK ECONOMICS
4th Edition
ISBN: 8220101443649
Author: KRUGMAN
Publisher: YUZU
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Chapter 23, Problem 10P
To determine
When the one-year loans would be especially attractive and the reason for that.
Concept Introduction:
Interest Rate: Interest refers to an amount of charge paid on the money borrowed from a lender. The interest is charged at a fixed rate on the amount borrowed, which is known as the interest rate.
Inflation: Inflation refers to the rise in the prices of goods and services and on the other hand, decrease in the currency’s value.
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If GDP goes up by 1% and the investment component of GDPgoes up by more than 1%, how is the investment share ofGDP changing in absolute terms?▶ In economics, what else is expressed as relative percentagechanges?
CEO Salary and Firm SalesWe can estimate a constant elasticity model relating CEO salary to firm sales. The data set is the same one used in Example 2.3, except we now relate salary to sales. Let sales be annual firm sales, measured in millions of dollars. A constant elasticity model is[2.45]ßßlog (salary) = ß0 + ß0log (sales) + u,where ß1 is the elasticity of salary with respect to sales. This model falls under the simple regression model by defining the dependent variable to be y = log(salary) and the independent variable to be x = log1sales2. Estimating this equation by OLS gives[2.46]log (salary)^=4.822 + 0.257 (sales) n = 209, R2 = 0.211.The coefficient of log(sales) is the estimated elasticity of salary with respect to sales. It implies that a 1% increase in firm sales increases CEO salary by about 0.257%—the usual interpretation of an elasticity.
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