6. Policy coordination and the world economy Consider an open economy in which the real exchange rate is fixed and equal to one. Consumption, investment, gov- ernment spending, and taxes are given by C = 10 + 0.8 (Y - T), I = 10, G =10, and 7 =10 Imports and exports are given by IM = 0.BY and X =03 Y where Y denotes foreign output. a. Solve for equilibrium output in the domestic economy, given Y". What is the multiplier in this economy? If we were to close the economy-so exports and imports were iden- tically equal to zero-what would the multiplier be? Why would the multiplier be different in a closed economy? b. Assume that the foreign economy is characterized by the same equations as the domestic economy (with as- terisks reversed). Use the two sets of equations to solve for the equilibrium output of each country. [Hint: Usethe equations for the foreign economy to solve for Y' as a function of Y and substitute this solution for Y* in part (a).] What is the multiplier for each country now? Why is it different from the open economy multiplier in part (a)? c. Assume that the domestic government, G, has a target level of output of 125. Assuming that the foreign government does not change G", what is the increase in G necessary to achieve the target output in the domestic economy? Solve for net exports and the budget deficit in each country. d. Suppose each government has a target level of output of 125 and that each government increases government spending by the same amount. What is the common in- crease in G and G necessary to achieve the target output in both countries? Solve for net exports and the budget deficit in each country. e. Why is fiscal coordination, such as the common increase in G and G* in part (d), difficult to achieve in practice?Grad - A dummy variable equal to 1 if the CEO attended a post-graduate program (e.g. MBA), 0 if not Computer - A dummy variable equal to 1 if the firm is in the computer industry, 0 if not Financial - A dummy variable equal to 1 if the firm is in the financial industry, 0 if not Here are the results of a regression of Logsalbon on the covariates: Log Salbon = 3.65+ .31 LogSales+ .0016 Fiveret+ .014 Age-.037Grad-.0037Computer+ .156 Financial ,R = .32 (.25) (.019) (.0012) (.003) (.039) (.064) (.049) Here are some tests of a few joint hypotheses: Ho : B2 = B4 = 0, F-statistic = 1.423 Ho : B2 = 35 = 0, F-statistic = 1.026 Ho : B4 = 35 = 0, F-statistic = 0.473 Ho : B2 = B4 = 35 = 0, F-statistic = 0.959 a. People frequently complain about the high salaries and bonuses earned by CEOs. Some suggest that their compensation is almost totally disconnected from the performance of their firms. Using the company's five year return (Fiveret) as a measure of a firm's performance, do you find evidence that CEO's are rewarded for good performance? What effect do you find? Justify your answer. b. Do CEO's at larger firms earn higher salaries? If so, how much? Justify your answer using Log Sales as your measure of firm size. c. Do the data provide any evidence that CEO's receive a premium (i.e. higher earnings) for having attended a post-graduate program? What effect do you find? Explain. d. Suppose I re-run the regression using Salbon instead of Log Salbon as the dependent variable and find that R" = .34. On the basis of this evidence, should I conclude that it's better to run this new regression instead of the earlier one? Explain.36, Appalachian Airlines began operating in 2008. The company lost money the first year but has been profitable ever since. The company's taxable income (EBT) for its first five years is listed below. Each year the company's corporate tax rate has been 40%%. Year Taxable Income 2008 $4,000,000 2009 $1,000,000 2010 $2,000,000 2011 $3,000,000 2012 $5,000.000 Assume that the company has taken full advantage of the Tax Code's carry-back, carry-forward provisions and that the current provisions were applicable in 2008. How much did the company pay in taxes in 20117 A. $688,500 B. $765,000 C. $ 800.000 D.$ 930,000 E. $1,023,000 ") (4-2) Liquidity ration 37. The current and quick ratios both help us measure a firm's liquidity. The current ratio measures the relationship of the firm's current assets to its current liabilities, while the quick ratio measures the firm's ability to pay off short-term obligations without relying on the sale of inventories. A Truc B. False 4 1(4-6) PE ratio 38, The price/earnings (P E) ratio tells us how much investors are willing to pay for a dollar of current earnings. In general, investors regard companies with higher PVE ratios as being less risky andfor more likely to enjoy higher growth in the future. A Truc B. False )(4-9) Trend analysis 39, Determining whether a firm's financial position is improving or deteriorating requires analyzing more than the ratios for a given year. Trend analysis is one method of examining changes in a finn's performance over time. A. The B. False ) (4-10) Window dressing 40. Which of the following statements is CORRECT? A. Bonowing by using short-term notes payable and then using the proceeds to retire long-term debt is an example of "window dressing" Offering discounts to customers who pay with cash rather than buy on credit and then using the funds that come in quicker to purchase additional inventories is another example of "window dressing." B. Borrowing on a long-term basis and using the proceeds to retire short-term debt would improve the current ratio and thus could be considered to be an example of "window dressing"