2. The distribution exam grades for Advanced Microeconomics class has a mean on u 71.5 and a standard deviation of o = 12. What is the probability of selecting a random sample of n = 36 students with an average grade greater than 74.47 [HINT: This question is about sampling distribution of the mean] (10 points)2. The distribution exam grades for Advanced Microeconomics class has a mean on u 71.5 and a standard deviation of o = 12. What is the probability of selecting a random sample of n = 36 students with an average grade greater than 74.47 [HINT: This question is about sampling distribution of the mean] (10 points)2. Demand 2.1 Price Changes Exercise 2.1.1 Suppose there are two goods a consumer can choose between, and that the prices are equal. First, construct a diagram, with quantities on the X- and Y-axes, where you show a utility maximizing choice for the consumer. b) Then, show what happens if you vary the price of good 1. Construct one budget line corresponding to the case when the price is cut by half, and another one when it is doubled. Will the consumer maximize her utility in the same point as before? Show how to derive the price-consumption curve using this technique. c) Use the price-consumption curve to derive the consumer's demand curve for good 1. d) Suppose that you also have another consumer's demand curve. Show in a new diagram how you can derive the market's demand curve, assuming the market only consists of these two consumers. You may assume that the consumers' demand curves are straight lines. 2.2 Income Changes Exercise 2.2.1 Start, similarly to the previous exercise, with a consumer who has two goods between which she can choose. However, instead of varying the price, you now vary the income. Derive the income- consumption curve. Use the cases when the income is either doubled or cut by half. Then, use the income-consumption curve to derive the Engel curve. Exercise 2.2.2 a) Suppose there are two goods, that the prices are given, and that there is a consumer with a certain income. Show in a diagram how it is possible to split the effect of a price fall on good I into the income- and substitution effects. Assume that the good is a normal good. b) If the good had been an inferior good, what would have been different in the graph? c) If the good had been a Giffen good, what would have been different? Exercise 2.2.3 Can a Giffen good be a normal good? Why or why not? Use a market with only two goods in your reasoning.Q]. Which of the following statements are false? Why?I {a} The forward rate F'Lris the certainty equivalent of the future spot rate. Therefore, the expected spot rate is equal to F3. {b} Market makers set the forward rate Fgrso that it is equal to the future spot rate. {c} If you expect the spot rate to increase, it is more accurate to use the forward rate FLT when recording an accounts receivable on the balance sheet a time r. Otherwise, use the spot rate. This rule ensures that your profits are maximized because your sales gures are maximized. {d} The forward rate Fhris the risk-adjusted expected value of the future spot exchange rate. {e} It is expensive to record an accounts receivable on the balance sheet using the forward rate when it is lower than the spot rate. {fl ln perfect markets, the currency of invoicing is irrelevant, because both parties to a contract can immediately hedge in the forward market. {g} Bidders to an international tender should be asked to submit prices in their home currency. Q1. Which of the following are risks that arise when you hedge by buying a forward contract in financial markets that are imperfect? (a) Credit risk: the risk that the counterpart to a forward contract defaults. (b) Hedging risk: the risk that you are not able to find a counterpart for your forward contract if you want to close out early. (c) Reverse risk: the risk that results from a sudden unhedged position because the counterpart to your forward contract defaults. (d) Spot rate risk: the risk that the spot rate has changed once you have signed a forward contract.E4. On June 1, 2000, the FLY has depreciated to WAF 0.90, but the six-month interest rates have not changed. In early 2001, the FLY is back at par. Compute the gain or loss (and the cumulative gain or loss) on two consecutive 180-day forward sales (the first one is bought at 2/1/2000), when you start with a FLY 500,000 forward sale. First do the computations without increasing the size of the forward contract. Then verify how the results are affected if you do increase the contract size, at the roll-over date, by a factor 1 + -that is, from FLY 500,000 to FLY 525,000
