Suppose the U.S. economy was at trend and now benefits from a boom in Asia, which raises ez by 0.015. All other demand parameters remain unchanged. In order to maintain Ÿ₁ = 0, the Federal Reserve raises the real interest rate R by 0.6 percentage point. Based on this information you know that b =
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- The demand ? (in billions of £) for a bond with coupon rate 5% and face value ?? = 1000, and two years to maturity as a function of its price ? is ? = 4000 − 2?. The supply in (billions of £)asafunctionofthepriceofthebondis ? = 2?+ 400. There is a business cycle expansion, so both supply and demand shifts. After the shift, the new demand curve is given by: ?=4000+?−2? ,whereas the new supply curve is ?=2? + 200. For which values of ? will the interest increase/decrease? Which values of ? are in line with empirical data?Could you expnad on how you got the equilibrium interest rate value? i don't get 0.065 when is solve the euqation 900 = 50/(1+i) + 50/(i+1)^2 + 1000/(1+i)^2. Also, my answer from plugging into the equation i part a. to find the demand and supply at YTM = 0.05, doesn't match using the same equation to get the answer?Drive the is curve mathematically anf graphically when investment function is more sensitive to rate of interest
- Bora's income in the current period is y=200, and income in the future period is y'=250. He pays lump-sum taxes t=30 in the current period and t'=10 in the future period. The real interest rate is 5%, per period.Suppose that Bora will always choose current consumption, c and the future consumption, c′ in a constant proportion:c=32c′ a) Determine the optimal current-period and future-period consumption for Bora. b) Determine the optimal saving for Bora, and show this in a diagram with his budget constraint and indifference curves, and also determine if Bora is a lender or a borrower?Suppose a handbill publisher can buy a new duplicating machine for $ 500 and the duplicator has a 1-year life. The machine is expected to contribute $ 550 to the year's net revenue. Instructions: enter your anwer as a whole number. What is the expected rate of return? (in percentage) If the real interest rate at which funds can be borrowed to purchase the machine is 8 percent, will the publisher choose to invest in the machine? Will it invest in the machine if the real interest rate is 9 percent? if it is 11 percent?You invest $1,000 in stocks. Would a macroeconomist call this an investment? Why or why not? An economist would say no, because the minimum threshold for a stock purchase to be considered an investment is $10,000. yes, because there is a concensus amongst Wall St. that this is considered an investment. O yes, because you are purchasing something that may yield more value later. no, because you are just buying an existing asset without creating any new productive capacity in the economy.
- “Anytime it is snowing when Joe Commuter gets up inthe morning, he misjudges how long it will take him todrive to work. When it is not snowing, his expectationsof the driving time are perfectly accurate. Consideringthat it snows only once every ten years where Joe lives,Joe’s expectations are almost always perfectly accurate.”Are Joe’s expectations rational? Why or why not?Part II. Technical/Mathematical For each of the following events and assuming ceteris paribus, describe and explain concisely the effects, if any, on the IS schedule and/or the LM schedule (or alternatively the MP schedule) and hence the output and real interest rate in equilibrium. 2.1E) There is a business cycle expansion, so both supply and demand shifts. After the shift, thenew demand curve is given by: D = 4000 + X − 2P, whereas the new supply curve is S =2P+ 200. For which values of X will the interest increase/decrease? Which values of X arein line with empirical data?
- In this question, use the approximate formula-as given by the Fisher equation-for calculating the the real rate of interest. Assume a fixed real interest rate and everyone believes the Central Bank's forecasts. Believing that inflation will be 1% for the year, the current yield on a government bond that matures in one year is 2.9%. The Central Bank then revises its inflation forecast to 1.6% for the year. What will be the yield on government bonds maturing in one year after this revision? Round to one decimal place and do not enter the % sign. If your answer is 1.333%, enter 1.3. If your answer is 1.666%, enter 1.7. If appropriate, remember to enter the negative sign.Assume there are no investment projects in the economy that yield an expected rate of return of 25 percent or more. But suppose there are $10 billion of investment projects yielding expected returns of between 20 and 25 percent; another $10 billion yielding between 15 and 20 percent; another $10 billion between 10 and 15 percent; and so forth. Cumulate these data and present them graphically, putting the expected rate of return on the vertical axis and the amount of investment on the horizontal axis. What will be the equilibrium level of aggregate investment if the real interest rate is (a) 15 percent, (b) 10 percent, and (c) 5 percent? Explain why this curve is the investment demand curve.1. Let's use the Euler equation two ways. First, to find out the optimal consump- tion path, taking the interest rate as given (Chapter 9 of GLS) and then to find out the equilibrium interest rate that wil Choose sidebar display for saving and investment, taking the consumption path as given (Chapter 11 of GLS). Both times, the utility function will be the same: Uln(c)+0.9ln(+1) So the future counts 90% as much as the present. In Part 1, income each period is 100, and the interest rate is 20%. In Part 2, consumption in each period is 100-in other words, income each period is 100, but income isn't storable (it's "manna"), so you have to consume it or lose it. Answer the following questions. Part 1: What is optimal consumption each period? In period t of this two- period world, will this person be borrowing or saving or neither? ⚫ Part 2: What is the equilibrium interest rate between these two periods? If the equilbrium interest rate were lower than that level, would that create a…