ANSER ALLL QUESTIONS

a. Suppose that the Federal Reserve wants to hold its federal funds rate target constant but banks' demand for reserves decreases at any given interest rate. When faced with this shift in demand, what does the Fed have to do to keep the federal funds rate near its target: does it have to conduct an open market operation in which it buys US Treasury bonds or an open market operation in which it sells US Treasury bonds?

Suppose instead that banks' demand for reserves at any given interest rate remains unchanged, but that the Federal Reserve wants to increase its target for the federal funds rate. What does the Fed have to do to make the equilibrium federal funds rate rise to match the new, higher target: does it have to conduct an open market operation in which it buys US Treasury bonds or an open market operation in which it sells US Treasury bonds?

4. Suppose that two banks - the First National Bank and the Second National Bank - have balance sheets as shown below. For both banks, as in our in-class discussions, "other assets" simply refers to the value of bank buildings, office equipment, ATM machines, and other physical assets that the bank owns and uses in the course of its day-to-day operations.

[3:24 PM, 10/24/2021] Fridah: A country is currently in a recession.

a. Illustrate this economy on a fully-labeled aggregate demand-aggregate supply model. Include aggregate demand, short-run aggregate supply, and long-run aggregate supply. I. Label the short-run equilibrium price level PLE and the short-run equilibrium output YE. II. Label the full-employment level of output YF. b. If the government and central bank do not intervene, how would this economy adjust in the long run? Explain.

c. Illustrate the process of part (b) on your graph from part (a). d. The government decides to use fiscal policy to correct the economic situation in part (a). Assume the difference between the short-run and long-run equilibrium output is worth $36 billion, and the marginal propensity to consume is 0.75. Calculate one specific and effective fiscal policy action the government could take. e. What would be the short-run impact of the government's action on the economy's real output? f. What would be the short-run impact of the government's action on the potential output of the economy? g. Will the long-run equilibrium price level if the government intervenes be less than, equal to, or greater than the long-run equilibrium price level without intervention? h. Show the impact of the government intervention from part (d) on the equilibrium real interest rate on a fully labeled loanable funds market graph. in

Consider the same scenario as the example in class. However while the price of capital (r) remains at $10 per unit, the price of labor increases from $20 to $30. Here are the original Production Function and Isocost Curve equations: Q(K,L) = L0.4K0.6 = 100 Isocost: C = 20L + 10K a. What is the new Isocost Curve Equation with the price change? b. Calculate the new cost-minimizing combination of L and K to produce 100 units of output. c. What is the cost associated with this bundle? d. Based on the graph in slide 52 &

At Home country, the industry of canned tomato is a monopolistically competitive industry where all firms are identical, except for the fact that they produce slightly different varieties of canned tomato. When the firms in this industry increase production by one unit, their total cost increases by $12, irrespective of the total quantity of production. At zero production, the firms in the industry would incur a total cost of $3,000.

(4 marks) Now assume that each firm in the industry has the same market share, so the quantity of tomato cans that each firm produces () is equal to the total sales in the market () divided by the number of participating firms ().

Total sales in the market () are equal to $30,000. Derive the firms' average cost to show that the average cost curve (CC) is given by:

Curve:

(2 marks) The demand side of the canned tomato market is represented by the following curve, which summarises price competition in the industry. Curve:

Illustrate the curve and the curve on a graph with price and cost on the vertical axis, and the number of firms on the horizontal axis. Solve for the market equilibrium at Home in autarky, that is, find the equilibrium number of producers and the equilibrium price of canned tomato.

(4 marks) Suppose that Home is now able to trade with two other identical countries. Solve for the trading equilibrium in the industry and illustrate this change in trading equilibrium on a graph (this new graph is based on the graph you drew in point (b), with the addition of the change in equilibrium after trade).

(2 marks) Explain the effects of trade on the industry of tomato cans.

(8 marks) Now imagine a scenario where firms in the industry of canned tomato at Home also differ in terms of their productivity, that is, marginal costs are different across firms. Consider the following graph representing two of the firms participating in this market at Home in autarky.

Note that both firms face the same demand curve (D). The slope of D is given by:

Where is the size of the market and is a parameter that indicates the sensitivity of a firm's demand to changes in the firm's price.

Assume that Home now opens to free trade under this new scenario. Use the graph above (you could redraw it by hand if you preferred) to show the effect of trade on this market. Briefly explain how trade may affect firms differently, depending on their level of productivity.

Alberto runs a small but very successful coffee shop inside a busy mall in Peterborough. His wife and he run this coffee shop 7 days a week from 11 am to 8 pm. Other shop owners at the mall love their coffee and have become loyal customers of their business. Sonia, who runs a chain of flower shops in several malls, including theirs, have approached them with an idea to expand their business to other malls in the area. She claims to have a lot of connections with financial intermediaries who may be able to help fund the expansion. In fact, she promises to share with Alberto, the financial information and business proposal prepared by one of her competitors who successfully applied for a loan few months ago. According to her, she is best friends with Caroline who is working for a local bank as a manager and can help them get the required amount even without any documentation. She is asking for a promise to pay 5% of the loan amount to her as "fees" for her services.

Required:

Given your understanding of the business ethics, what is your advice to Alberto and his wife? Explain with reference to the moral leadership concept that we discussed in class. (5 marks)

Relate the above scenario using the front-page, personal gains, and the good night's sleep tests. What are your thoughts? (5 marks) [2:02 AM, 10/22/2021] Flo: From June through this past weekend, my son has had 30 plate appearances and 12 hits for a batting average of 400 (40%). Is this enough data to predict his batting average going forward? How would you go about setting up this prediction? Further, if you know that in his select ball career his at-bats total 67 with 21 total hits, but beginning in June, he began working with a more knowledgeable coach, and his Fall 2021 season at-bats total 5 with 3 total hits, how would this affect your confidence in your prediction?