BUSINESS

Fill in the table below. The current wage is $200 and the price of output (Q) is $30. Each box is worth ½ of a point. Enter whole numbers only (no commas, no decimals, no dollar signs) and if a value is negative, be sure to enter the negative sign.

 L Q MPL MRP Marginal Profit  Total Profit
 0  0  – – – – –  – – – – –  – – – – – – – – – – –  0
 1  7 [removed] [removed] [removed] [removed]
 2  15 [removed] [removed] [removed] [removed]
 3  22 [removed] [removed] [removed] [removed]
 4  28 [removed] [removed] [removed] [removed]
 5  33 [removed] [removed] [removed] [removed]
 6  37  [removed] [removed] [removed] [removed]

2.

Use the table from question 1 to complete the next six questions. Enter the correct values in the boxes below. Enter only whole numbers (no commas, no decimals, no dollar signs). Each fill-in-the-blank below is worth 3 points.

 

This profit maximizing firm will hire [removed]  workers.

3.

This profit maximizing firm will produce [removed]  units of output.

4.

This firm’s maximum profit equals [removed] .

5.

Now suppose that the wage falls to $170. You will need to recalculate the values from the table, given this new wage, to answer the questions below.

 

This profit maximizing firm will now hire [removed]  workers.

6.

This profit maximizing firm will now produce [removed]  units of output.

7.

This firm’s maximum profit now equals [removed] .

8.

Use the following information to answer the next nine questions. Each fill-in-the-blank is worth 3 points.

If your answer is in decimal form, enter it with 2 decimal places. For example, if your answer is .4, enter it into the fill-in-the-blank as .40, or if your answer is 1.4, enter it into the fill-in-the-blank as 1.40. If there are no decimals in your answer, you will simply enter the number; so if your answer is 2, enter 2 with no decimals. Do not use commas.

 

Suppose the economy is characterized as follows:

AE = C + I + G + (X-M)
C = 800 + .75(Y – T) – 30 (r)
I = 600 – 50(r)
G = 300
X- M = -25
T = 80
r = 5
Price level P is fixed at 1 (P=1)

 

Use the information above to get expressions for the consumption function and the AE equation.

The vertical intercept for the consumption function is [removed] .

9.

The slope of the consumption function is [removed] .

10.

The vertical intercept of the AE equation is [removed] .

11.

The slope of the AE equation is [removed] .

12.

Equilibrium output is equal to [removed] .

13.

Equilibrium consumption is equal to [removed] .

14.

Suppose the investment demand function changes and is now I=700 – 50(r).

 

The new value of equilibrium output is [removed] .

15.

The new value of equilibrium consumption is [removed] .

16.

Recall that the consumption function is C = 800 + .75(Y – T) – 30 (r). The Keynesian spending multiplier in this economy is [removed] .

17.

Use the following information to answer the next four questions. Each multiple choice question is worth 3 points.

 

mm = money multiplier = .8
MB = monetary base = 4000
Money Demand: Md = P X [ a0 + .5 (Y) – 200 (i) ]
where: a0 = 1200, Y = 6000

For simplicity we hold the price level fixed at 1 and assume that inflationary expectations are fixed at 2%. Y is also held constant in this problem.

 

What is the equilibrium interest rate (i)?

[removed]  A) .20%
[removed]  B) 1%
[removed]  C) 5%
[removed]  D) 8%
[removed]  E) None of the above are correct

18.

Suppose a0 falls to 800. What is the new equilibrium interest rate?

[removed]  A) .33%
[removed]  B) 3%
[removed]  C) 4%
[removed]  D) 6%
[removed]  E) None of the above are correct

19.

Suppose that the Fed wanted to keep interest rates constant at their initial level (the value you found in #1). What would the Fed have to do in terms of open market operations to achieve this?

[removed]  A) 500 in open market sales
[removed]  B) 500 in open market purchases
[removed]  C) 400 in open market sales
[removed]  D) 400 in open market purchases
[removed]  E) 2800 in open market sales

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