Assignment: Economics Essay

1. Economists in Funlandia, a closed thrift, energize collected the spare-time activity reading about the economic system for a particular yearEconomists also estimate that the investiture aim iswhere r is the countrys real divert rate, expressed as a percentage. Calculate private relieve, public saving, national saving, investment, and the equilibrium touch on rate. Please note national savings is not related to the interest rate, which means that the supply curve for loanable specie is vertical. (15 points)Private Savings= Y-T-C atomic number 190-1500-6000= 2500 universe Saving= T-G 1500-1700= -200National Saving= S=(Y-T-C)+(T-G)=(10000-1500-6000)+(1500-1700)= 2300 Investing= I=Y-C-G 10000-6000-1700= 2300 veridical interest rateI = 3,300-100r , 100r = 3,300-I100r = 3,300-2300 ( I=2300)100r = 1000100r/100 = 1000/100 (dividing it by 100)r = 102. In the summer of 2010, coition passed a far-reaching financial reform to prevent another financial crisis standardised the one experienced in 2008-2009. Consider the following possibilities a. Suppose that, by requiring firms to comply with strict regulations, the bill increases the costs of investment. On a well-labeled graph, constitute the consequences of the bill on the market for loanable funds. Be sure to specify changes in the equilibrium interest rate and the level of saving and investment. What are the effectuate of the bill on long-run economic growth (recall steep(prenominal) investment would increase capital and capital per worker)? (7 points) i. The demand loanable would decline along with the equilibrium. The saving and investments pull up stakes decline as wellhence giving the economy a lower rate for the future. ii.b. Suppose, on the other hand, that by in effect regulating the financial system, the bill increases savers confidence in the financial system. submit the consequences of the policy in this situation on a new graph, once again noting changes in the equilibrium interest rat e and the level of saving and investment. over again evaluate the effects on long run growth. (7 points) i. The supply of loanable funds would increase. The interest rate will decrease while the savings and investments will increase. Which will let the economy growth for the future, ii.Problems for Chapter 143. According to an elderly myth, Native Americans sold the island of Manhattan 400 years ago for $24. If they had regain to a financial investment that yielded an interest rate of 7% per year, how much would they have today? (8 points) a. (1.07)400 x 24= $13.6 Trillion4. For each of the following kinds of insurance, give an example of a behavior that can be called lesson hazard and another example of behavior that can be called inauspicious selection a. Medical insurance (6 points)i. A sick person is more probably to apply to medical insurance compared to a healthy person. meaning its an adverse selection. A healthy person may cast down health insurance too but now he may less likely to take care of himself, this would be a honourable hazard. b. Car insurance (6 points)i. A guessy driver is more likely to apply for car insurance, this would be an adverse selection. Or once a driver has insurance, they may be driving more reckless, this would be a moral hazrd.5. For each of the following pairs of bonds, which bond would you expect to pay a higher interest rate? Explain. (5 points each) a. A bond of the US governance or a bond of an eastern European government i. Eastern European because non-US bonds will include risk premiums and also have higher interest rates b. A bond that repays the principal in 2015 or a bond thatrepays the principal in 2040 i. 2040 because higher maturity requires higher interest rate. c. A bond from Coca-Cola or a bond from a software keep high society that run in your garage i. The software comp some(prenominal) out-of-pocket to not being well known so it would be a higher interest rate. d. A bond issued by the nat ional government or a bond issued by the state of newfangled York i. Definitely federal government because they are not tax-exempted compared to municipal bonds6. When company executives buy and sell stock base on private information they obtain as part of their jobs, they are engaged in privilegedr profession. a. pass an example of inside information that top executive be useful for buying or selling stock. (6 points) i. Information on new products or any government involvement that may affect the firm b. Those who trade stocks based on inside information usually earn very high rates of return.Does this fact violate the efficient markets hypothesis? (6 points) i. Who does trade with inside information is not violating the efficient market hypothesis. The hypothesis includes all visible(prenominal) information about the future of the firm. Inside information is not operable to the public meaning the price of the stock doesnt reflect this. c. Insider trading is illegal. Why d o you suppose that is? (5 points) i. Its illegal for sure due to the fact that it gives others an unfair advantage over everyone else who doesnt have access to this.7. Jamal has a utility function , where W is his wealth in gazillions of dollars and U is the utility that he obtains. a. Graph Jamals utility function. Is he risk averse? Explain. (7 points) i.1. He is risk averse because of his chances of getting more coin for more risk. b. In the final stage of a game show, the emcee offers Jamal a pickaxe between i. $4 million for sureii. A gamble that pays $1 million with 60% probability and $9 million with 40% probability Should Jamal pick choice i or choice ii? Hint evaluate the utility that Jamal would expect to receive in choice i and choice ii. Jamal would expect to receive utility in the amount of the weighted average of the possible outcomes, where the probabilities are the weights. (7 points)E(Utility) = 0.6*U(1000000) + 0.4*U(9000000) = 0.6*0 + 0.4*1 = 0.4Jamel should p ick option one because he has a only 40% in order to get the 9 million but it might not worth it because he could end up back at 1 million.