Explain correctly

When the government subsidizes investment, such as with an investment tax credit, the subsidy often applies to only some types of investment. This question asks you to consider the effect of such a change. Suppose there are two types of investment in the economy: business investment and residential investment. In addition, suppose that the government institutes an investment tax credit that applies only to business investment.

How does this policy affect the demand curve for business investment? The demand curve for residential investment?

Draw the economy's supply and demand for loanable funds graph. How does this policy affect the supply of and demand for loans? What happens to the equilibrium interest rate?

Compare the old and the new equilibrium. How does this policy affect the total quantity of investment? The quantity of residential investment?

Consider an economy with a government controlled (exogenous) saving rate (s), exogenous population growth (n), a fixed depreciation rate (d), but no technical progress (g=0). Suppose this economy is at steady state and has a relatively low saving rate so that its steady state capital labor ratio is below its golden rule capital labor ratio.

Write down the fundamental equation of growth (capital accumulation equation), draw a graph of its major components to illustrate the concept of steady state. On your graph, show the golden rule capital labor ratio.

Fully explain the economic intuition behind the stability of steady state. Explain the adavantages of maintaining a capital labor ratio at the golden rule level.

Suppose the government increased the saving rate to ensure enough investment to maintain the golden rule capital labor ratio as a steady state. Using graphs and written explanation, describe the transition of the economy from its initial steady state to the golden rule with the new higher saving rate. What happens to consumption and income per person (in levels and growth rates) in the transition period and in the new steady state. Are the growth rates of consumption and income per worker different in the two steady states?

Why might a benevolent government choose not to implement such a policy?

2) Consider the following demand and supply functions: Qi =24-4P, demand Q;=-6+2E,_, P, supply and expectations generator E, P, = P._ a) Calculate the long run price and quantity in this market. Justify your answer. b) Is this system a stable or unstable Cobweb model? Justify your answer. c) Beginning at P, =4 and Q; =8, calculate three years of prices and quantities in this market. Suppose instead that the demand and supply functions are: Q; =24-2P, demand Q;=-6+4E,_P, supply d) Repeat questions a) through c) where in c) part you begin with P, =4 and Q, =16.You are required to demonstrate trading strategies and instruments that would be appropriate to exploit price efficiency/inefficiency during the process of acquisition. Your analysis should forecast possible trading profit going forward until the appropriate cut-off date. (40%) 1) Drawing on the insights from previous section, describe the type of trading strategies and risk management tools intended for the event and your design principle for using these tools based on the result of event analysis 2) Demonstrate, using relevant trading instruments for the type of strategy used, e.g. long- short strategy and calculate total return from such strategy. 3) Calculate relevant statistics to demonstrate understanding on volatility and correlation amongst the trading pairs. 4) Illustrate how to avoid adverse price movement as a result of (a) unexpected down side movement for the long position; (b) unexpected up side movement for the short position; and the characteristics of the type of instrument used to hedge risks. 5) In retrospect, how to use (3) in combination with (2) to maximise profit