Assume that the demand for real money balances is given by the equation M/P = 0.6Y -100i, where Y output and i is the nominal interest rate (in percent). (a) If Y is 1,000, M is 100, and i is 4 percent, what must P be? (b) If i is 4 percent and the expected price level percent change (inflation) is 1 percent, what is the real interest rate? (c) Using the information above, graph the monetary market equilibrium and graph the LM relation. (d) Assume that Treasury Bonds pay an interest rate of 3 percent. A risk-neutral investor has the option of purchasing this bond or purchasing a bond from a company that has a 1 percent possibility of going bankrupt and defaulting. What should the risk premium for the company bond be?

The options are: a) raise / reduce / maintain b) increase / reduce / maintain c) more / less / the same amount of d) more / less / just as e) shift to the right / shift to the left / no shift at all f) shift to the right / shift to the left / no shift at all g) an appreciation / a depreciation / no change in the value

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Question 8 Dr. John buys stock in a foreign company that has a yield of 28% but the inflation rate is 6%. The effective rate of return is most nearly: Oa 24% Ob.21% O<.18% Od 20%

Suppose the production function takes the form F(K, L) = The capital share is equal to: ⒸĀK 13 L L+K ĀK K+L ĀKL K+L

(a) ASP100) P Q 125 100 75 (D) AS(P125) $560 500 440 P Q P (C) AS(PS) 125 $500 120 100 440 100 75 300 75 500 Suppose the full employment level of real output (Q) for a hypothetical economy is $500, the price level (P) initially is 100, and prices and wages are flexible both upward and downward. Refer to the accompanying short-run aggregate supply schedules. In the long run, an increase in the price level from 100 to 125 will O increase real output from $500 to $560 O $620 O change the aggregate supply schedule from (a) to (c) and result in an equilibrium level of real output of $560 O decrease real output from $500 to $440 O change the aggregate supply schedule from (a) to (b) and result in an equilibrium level of real output of $500

The lower the interest rate: the greater the level of inflation the smaller the present value of a future amount the greater the present value of a future amount None of the statements associated with this question are correct.

(a) In this case, Cunneen thinks that the RBA wants to       [maintain]  the value of the Australian dollar. (b) If the RBA wanted to reduce the value of the Australian dollar, it would need to       [reduce]  Australian interest rates. (c) If the RBA’s strategy was to increase the value of the Australian dollar, it would have taken steps to cause       [less]  capital to flow into Australian financial markets. (d) A strategy of reducing the value of the Australian dollar via conventional monetary policy would be       [more, less, just as]  difficult, if interest rates overseas were to rise. (e) Were the RBA to want the value of the Australian dollar to be higher, they would need the demand curve for the Australian dollar in the FX market to       [shift to the right, shift to the left, not shift at all]  . (f) Were the RBA to want the value of the Australian dollar to be lower, they would need the supply curve for the Australian dollar in the FX market to       [shift to the right,…

Why do the selling prices of depreciable assets increase with the general inflation rate?

14.46. Well-managed companies set aside money to pay for emergencies that inevitably arise in the course of doing business. A commercial solid-waste recycling and disposal company in Mexico City puts 0.10% of its income after-tax income into such an account. (a) How much will the company have after 7 years if after-tax income averages $16.4 million per year and inflation and market interest rates are 4% per year and 9% per year, respectively? (b) What will be the buying power of that amount in today's dollars if the inflation rate is 4% per year?