The CARA and CRRA utility functions are both members of a more general class of utility functions called harmonic absolute risk aversion (HARA) functions. The general form for this function is where the various parameters obey the following restrictions: The reasons for the first two restrictions are obvious; the third is required so that U_ > 0.a. Calculate r (W) for this function. Show that […]

Suppose fairness is defined as those with the highest incomes can afford to pay a greater proportion of their income in taxes. Then which of the following taxation systems would be consistent with this notion of fairness? a. A true flat tax. b. A flat sales tax on consumption purchases. c. A progressive tax on income. d. A fixed federal tax of $5,000 that everyone […]

Using the aggregate expenditures model, assume the aggregate expenditures (AE) line is above the45-degree line at full-employment GDP. This vertical distance is called a (an) a. inflationary gap. b. recessionary gap. c. negative GDP gap. d. marginal propensity to consume gap.

Assume the economy is in recession and real GDP is below full employment. The marginal propensity to consume (MPC) is 0.80, and the government increases spending by $500 billion. As a result, aggregate demand will rise by a. zero. b. $2,500 billion. c. more than $2,500 billion. d. less than $2,500 billion.

How do you think the crisis of 2008 would have been mitigated if there had been no shadow banking sector but only the formal depository banking sector?   Q449: Describe the incentive problem facing the U.S. government in responding to the 2007–2009 crisis with respect to the shadow banking sector. How did the Dodd – Frank Act attempt to address those incentive problems?

Assume business investment spending is $10 billion when the interest rate is 2 percent. If the interest rate increases to 5 percent, investment spending will a. increase to over $10 billion. b. decrease to less than $10 billion. c. remain unchanged. d. remain unchanged until the interest rate reaches 5 percent and then investment spending increases.

7. Autonomous consumption is a. positively related to the level of consumption. b. negatively related to the level of consumption. c. positively related to the level of disposable income. d. independent of the level of disposable income.

The following diagram illustrates the demand curve facing a monopoly in an industry with no economies or diseconomies of scale and no fixed costs. In the short and long run, MC=ATC. Copy the diagram and indicate the following: a. Optimal output b. Optimal price c. Total revenue d. Total cost e. Total monopoly profits f. Total “excess burden” or “welfare costs” of the monopoly (briefly […]

Use the aggregate expenditures model to demonstrate the multiplier effect. How are changes in the MPC, changes in the MPS, and the size of the multiplier related? Answer the following questions: a. What is the multiplier if the MPC is 0? 0.33?0.90? b. Suppose the equilibrium real GDP is $100 billion and the MPC is 4/5. How much will the equilibrium output change if businesses […]

Which parameter indicates the number of transitions of the counter rung? a) Count Up c) Preset b) Package_Counter d) Accum What is the counter’s tag name? a) Count Up c) Preset b) Package_Counter d) Accum