Question
help retired for the following questions How many ratios of exchange would an individual have to cope with in a barter economy with 276 different
help retired for the following questions
- How many ratios of exchange would an individual have to cope with in a barter economy with 276 different items available for exchange?
- How many absolute prices would there be if one of the items available for exchange were used as a generally acceptable medium of exchange?
- Explain how the use of money as a unit of account can help reduce transaction costs in this economy. (10 marks)
- The Bank of Canada defines the Canadian money supply in terms of M1+, M1++, M2, M2+, M2++, and M3 monetary aggregates.
- What financial assets are included in each of these six aggregates?
- How does each aggregate satisfy the functions generally attributed to money?
- Are there any characteristics (other than those of money's functions) that should be considered in the definition of money? (10 marks)
- Suppose you just deposited $14,000 in your bank savings account. The current real interest rate is 3%, and inflation is expected to be 2.5% over the next year.
- What nominal interest rate would you require from the bank over the next year?
- How much money will you have at the end of one year?
- If you are saving to buy a car that currently sells for $14,900, will you have enough to buy it? (10 marks)
- The demand curve and supply curve for one-year discount bonds with a face value of $1000 are as follows, respectively.
Bd: P = 1200 - 0.5 Q
Bs: P = 400 + 0.3 Q
Where P = price and Q = quantity.
- What is the expected equilibrium price and quantity of bonds in this market?
(2.5 marks)
- Given your answer to part (a), what is the expected interest rate in this market?
(2.5 marks)
As a monetary policy action, suppose the central bank purchases 100 of the bonds. Assuming the bond demand and money demand are held constant, answer the next two questions.
- How does the central bank's action affect the bond demand and supply equations? (2.5 marks)
- Calculate the effect on the equilibrium interest rate in this market as a result of the central bank's action. (2.5 marks)
- State the expectations theory and explain its significance. (3 marks)
Using the generalized equation of the expectations theory of the term structure of interest rates, calculate today's four-year rate, assuming that the current one-year, 6% rate is expected to rise by one percentage point in each of the next three years.
(7 marks)
- A company has just announced a 3-for-1 stock split, effective immediately. Prior to the split, the company had a market value of $4 billion with 100 million shares outstanding. Suppose the split conveys no new information about the company. Answer the following questions indicating how you arrived at your answer in each case.
- What is the value of the company? (2.5 marks)
- What is the number of shares outstanding? (2.5 marks)
- What is the price per share after the split? (2.5 marks)
- If the actual market price immediately following the split is $20 per share, what does this tell you about market efficiency? (2.5 marks)
- Describe how, in recent years, banks have become multi-service institutions, and explain how there has been an erosion of the "four pillars" of finance. (10 marks)
- Complete all five parts of this question.
- How can government fiscal imbalances lead to a financial crisis? (2 marks)
- How can financial liberalization lead financial crises? (2 marks)
- How can opening up to capital flows from abroad lead to a financial crisis? (2 marks)
- How can a bursting of asset-price bubble in the stock market lead to a financial crisis? (2 marks)
- What is shadow banking system, and why was it an important part of the 2007-2009 financial crisis? (2 marks)
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