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1- The data collected for USA over the period of 1950-2010. The following equation is estimated log(Dt)=-2.88+1.06log(Y.) (0.12) (0.293) where D. is defense expenditure and Y is GDP. Standard errors are in parenthesis. Find 95% confidence interval for parameters and interpret the parameter estimates. 2-We aim to fit following model EARNINGS = B, + B,SM + BSF + B,Math + u where hourly EARNINGS is regressed on a constant, Schooling of Mother (SM), Schooling of Father (SF) and Mathematical Capability (Math). Hourly earnings are measured in dollar, SM and SF are measured in schooling year and Math is measured by exam results. Regression analysis produces following output Dependent Variable: EARNINGS Method: Least Squares Sample: 540 Included observations: 540 Variable Coefficient Std. Error t-Statistic Prob. C 14.65851 3.589279 -4.083972 0.0001 SF 0.668173 0.220817 3.025912 0.0026 SM 0.277970 0.290546 0.956715 0.3391 Math 0.458015 0.066418 6.895906 0.0000 R-squared 0.166245 Mean dependent var 19.71924 Adjusted R-squared 0.161579 S.D. dependent var 14.60151 a-Interpret the parameter estimates (considering the test statistics). b- Comment on the goodness of fit of the model. C- A researcher claims that educated man/women prefer to get married to educated women/men. Suppose this argument is empirically verified for those individuals. Reassess the estimation results in the light of this evidence. d- It is claimed that the total effects of SM and SF on earnings is 1. Explain how you can this claim. Give all the details. d- A researcher calculates parent education as SP=SM+SF. Explain what would happen if the following model is estimated. EARNINGS = B, + B,SM + B,SF + B,Math + +BSP+u (2)1. Assume that the country of Rankinland is currently in recession. (a) Assume that Rankinland produces only food and clothing. Draw a correctly labeled production possibilities curve for Rankinland. Show a point that could represent the current output combination and label it A. (b) Assume that the Central Bank of Rankinland pursues an expansionary monetary policy. (i) Identify the open-market operation that the Central Bank would use. (ii) Draw a correctly labeled money market graph and show the short-run effect of the expansionary monetary policy on the nominal interest rate. (iii) Assuming no change to the price level, what happens to the real interest rate as a result of the expansionary monetary policy? Explain. (iv) Given your answer to part (b)(iii) regarding the real interest rate, what happens to the real gross domestic product (GDP) in the short run? Explain. (c) Suppose Rankinland has a current account deficit. Rankinland's currency is called the bera. (i) What will initially happen to the current account deficit in Rankinland solely due to the change in the real GDP from part (b)(iv) ? Explain. (ii) What will happen to the international value of the bera solely due to the change in the real GDP from part (b)(iv) ? Explain.2. The following is a simplified balance sheet for Mi Tierra Bank in the United States. Mi Tierra Bank Assets Liabilities Required reserves $10,000 Demand deposits $100,000 Excess reserves $5,000 Loans $85,000 Owner's equity $0 (a) What is the reserve requirement? (b) Assume that Luis withdraws $5,000 in cash from his checking account at Mi Tierra Bank. (i) By how much will Mi Tierra Bank's reserves change based on Luis' withdrawal? (ii) What is the initial effect of the withdrawal on the M1 measure of money supply? Explain. (iii) As a result of the withdrawal, what is the new value of excess reserves on the balance sheet of Mi Tierra Bank based on the reserve requirement from part (a) ? (c) Assume that the next day John withdraws from Mi Tierra Bank an amount that exceeds the bank's excess reserves. Assuming that no loans are called in, how can Mi Tierra Bank cover its required reserves?3. Assume the economy of Andersonland is in a long-run equilibrium with full employment. In the short run. nominal wages are fixed. (a) Draw a correctly labeled graph of short-run aggregate supply, long-run aggregate supply, and aggregate demand. Show each of the following. (i) Equilibrium output, labeled Y1 (ii) Equilibrium price level, labeled PL, (b) Assume that there is an increase in exports from Andersonland. On your graph in part (a), show the effect of higher exports on the equilibrium in the short run, labeling the new equilibrium output and price level Yz and PL2, respectively. (c) Based on your answer in part (b), what is the impact of higher exports on real wages in the short run? Explain. (d) As a result of the increase in exports, export-oriented industries in Andersonland increase expenditures on new container ships and equipment. (i) What component of aggregate demand will change? (ii) What is the impact on the long-run aggregate supply? Explain.49. Which of the following occurs as investment 52. One explanation for the downward slope of the becomes more responsive to changes in the aggregate demand curve is that when the price interest rate? level increases, which of the following will (A) Monetary policy becomes more effective at decrease? changing real gross domestic product. (A) Real value of assets (B) Fiscal policy becomes more effective at (B) Prices of foreign goods changing real gross domestic product. C) Prices of substitute goods (C) Monetary policy becomes more effective at (D) Expectations of future prices changing interest rates. E) Government deficit (D) Fiscal policy becomes more effective at changing interest rates. 53. Which of the following is true about changes in E) There is no change in the effectiveness of tax rates, changes in the level of government either monetary or fiscal policy. expenditures, and changes in the money supply? 50. If two nations specialize according to the law of (A) They are automatic stabilizers. (B) They are tools of discretionary fiscal policy. comparative advantage and then trade with each other, which of the following would be true? C) They have different lag times between implementation of a policy and its effects (A) A smaller number of goods would be avail- on aggregate demand. able in each trading nation. (D) They are favored equally by both classical (B) Total world production of goods would and Keynesian economists to fine-tune the decrease. economy . (C) Everyone within each nation would be (E) All are controlled by the Federal Reserve better off. system. (D) Each nation would increase its consumption possibilities. 54. An increase in which of the following would (E) One nation would gain at the expense of the LEAST likely increase labor productivity? other nation. (A) Physical capital 51. The shifting of a country's production possibile (B) Human capital ities curve to the right will most likely cause C) Technological improvements D) Educational achievement (A) net exports to decline E) The labor force (B) inflation to increase (C) the aggregate demand curve to shift to the left 55. Tariffs are different from assigned import quotas (D) the long-run aggregate supply curve to shift in that tariffs will to the left E) the long-run aggregate supply curve to shift to (A) restrict imports the right B) increase the price of imported goods C) benefit domestic consumers of imported goods "D) hurt domestic producers of goods facing import competition (E) generate additional revenue for the domestic government