1. Can you think of a reason why people in general do not lend money to one another to buy a house or a car? How would your answer explain the existence of banks? 2. Some economists suspect that one of the reasons economies in developing countries grow so slowly is that they do not have well-developed financial markets. Does this argument make sense? 3. Financial regulation is similar, but not exactly the same, in industrialized countries. Discuss why it might be desirable or undesirable-to have the same financinl regulation acrom industrialized countries 4. If mortgage rates rise from 5% to 10%, but the expected rate of increase in housing prices rises from 296 to 9% are people more or less likely to buy houses? 5. An important way in which the Federal Reserve decreases the money supply is by selling bonds to the public Using a supply and demand analysis for bonds, show what effect this action has on interest rates. Is your answer consistent with what you would expect to find with the liquidity preference framework? 6: Go to the St. Louis Federal Reserve FRED database and find data on met corporate dividend payment (BO5GRC1A027NBEA). Adjust the units setting to "Percent Change from Year Ago and download the data into a spreadsheet a. Calculate the average annual growth rate of dividends from 1960 to the most recent year of data avilable b. Find data on the Dow Jones Industrial Average (DJIA) for the most recent day of data available Suppose that $100 dividend is paid out at the end of next year. Use the Gordon growth model and your answer to part (a) to calculate the rate of retum that would be required for equity Investment over the next year iting you could buy a share of DJIA 7. Which relationship would you expect to exist between mocasines of corruption and living standards at the country level? Explain by which channel corruption might affect living standards 8. Would yon recommend the adoption of a system of deposit Insurance, like the FDIC is the United States, in country with wenk institutions, prevalent corruption, and ineflective regulation of the financial sector 9. Go to the St. Louis Federal Reserve FRED database and find data on the percent of value of loans secured by collateral for all commercial and Industrial loans (ESANQ) and the net percentage of domestic banks tightening standards for commercial and industrial loans to large nud middle-marketing (DRTSCILM). Download the data into a sprawlshoel Calculate the average over the most recent four quarters and the four quatters prior to that for the bank standards indicator and the percent of loatis secured by collateral indicator Do the averages behave as you would expect the Data Analysis toolin Excel to calculate the correlation coefficient for the two cinta series from 1997.03 10. If the British central bank lowers interest rates to reduce tunemployment, what will happen to the value of the pound in the short run and in the long run? Case 2. Managerial Report 11. Under the gold standard, if Britain became more productive relative to the United States, what would happen to the money supply in the two countries? Why would the changes in the money supply help preserve a fixed exchange rate between the United States and Britain 12. Go to the St Louis Federal Reserve FRED database and find data on how price (SPCSORSA stock prices (SP500) a more of the net wealth of honucholds (TNWBSHNO), and personal consumption expenditures (PCEC). For all four measures, be sure to convert the frequency setting to Quarterly. Download the data into a preadsheet and make sure the data align correctly with the appropriate dates For all four hories for cach quarter calentate the annualized growth rate from quarter to quarter. To do this take the current period data in the previous quarter data and then divide by the previons quarter data. Multiply by 100 to change each lotow percent and weltiply by to incite the data For the four series calculate the average growth rates over the most recent fou quarter of data available Comment on the relationships among house prices, stock prom niet wealth of household and consumption they relate to your rett b. Repeat part(s) for the four quarter of 2005, and again for the period from 2008 03 to 2000 2. Cet on the relationships among house prices, stock prices, niet wealth of households, and consimption they relato to your own before and dirt the crisis How do the current household data compare to the data from the period prior to the financial and during the crisis Do you think the current data are indicative of a bubble