In Microsoft Word type answers to complete assignment.

1. Complete #4 of Problems p. 338.

2. Explain the problems & complications of monetary policy.

3. According to the Web--Who is the current chairman of the Federal Reserve (Fed). What is his current opinion on monetary policy & the condition of the United States economy? What is the current prime rate of interest and the discount rate?

4. Discuss "Recent U.S. Monetary Policy"in Chapter 15. p. 330.

{ 3300f446 > Figure 4.2 Text Alternative (Chapter 4) (%) Return to F igure 4.2 The curve S equals MC equals minimum acceptable price increases through (Q1. P1) at equilibrium price equals 8 dollars. The triangular area at bottom left of the curve is labeled as producer surplus. Note: All data is approximate, (&) Return to F igure 4.2 { 650f446 > Aa The supply curve in (5 Figure 4.2 includes not only the six producers named in (& Table 4.2 but also every other producer of oranges in the market. At the market price of $8 per bag, O, bags are produced because only those producers whose minimum acceptable prices are less than $8 per bag will choose to produce oranges with their resources. Those lower acceptable prices for each of the units up to Q) are shown by the portion of the supply curve lying to the left of and below the assumed $8 market price. FIGURE 4.2 Producer surplus. Producer surplusshown as the blue triangleis the difference between the actual price producers receive for a product (here $8) and the lower minimum payments they are willing to accept. For quantity Q. producers receive the sum of the amounts represented by the blue triangle plus the yellow area. Because we would only need to pay them the amount shown by the yellow area to get them to produce Q. the blue triangle represents producer surplus. = MC = minimum acceptable price Producer surplus T~ Equilibrium price = $8 Price (per bag) \" = { 650f446 > P A The individual producer surplus of each seller is thus the vertical distance from the seller's minimum acceptable price on the supply l 4 ' curve up to the $8 market price. Their collective producer surplus is shown by the blue triangle in @ Figure 4.2. In that figure, producers collect revenues of Py X Qy, which is the sum of the blue triangle and the yellow area. But producers would only need to receive the yellow area in order to make them just willing to supply Q) bags of oranges. The sellers therefore receive a producer surplus shown by the blue triangle. That surplus is the sum of the vertical distances between the supply curve and the $8 equilibrium price at each of the quantities to the left of Q. There is a direct (positive) relationship between equilibrium price and the amount of producer surplus. Given the supply curve, lower prices reduce producer surplus; higher prices increase it. If you pencil in a lower equilibrium price than $8, you will see that the producer surplus triangle gets smaller. If you pencil in an equilibrium price above $8, the size of the producer surplus triangle increases. QUICK REVIEW 41 Consumer surplus is the difference between the maximum price that a consumer is willing to pay for a product and the lower price actually paid. Producer surplus is the difference between the minimum price that a producer is willing to accept for a product and the higher price actually received. - In a graph of demand and supply, consumer surplus is represented by the area below the demand curve and above the market price; producer surplus by the area above the supply curve and below the market price. Total Surplus and Efficiency = 3380f446 > D as & Figure 5.1 Text Alternative (Chapter 5) (%) Return to F igure 5.1 Three graphs are depicted with P in dollars on the vertical axis and Q on the horizontal axis. In graph (a), Garcia's willingness to pay is a demand curve labeled D1 that decreases and goes through two points: (2, 3) and (4, 1). In graph (b), Johnson's willingness to pay is a demand curve labeled D2 that decreases and goes through two points: (2, 4) and (4, 2). In graph (c). the collective willingness to pay is a demand curve labeled Dc that goes through three points: (2, 7). (3. 5), and (4, 3). Graph (c) also has an upward-sloping supply curve S that intersects Dc at (3. 5), which is labeled Optimal quantity. All data are approximate. (2} Return to Figure 5.1 { 750f446 > P A Instead, we are adding the prices that people are Willing to pay 1or the 1ast Unit o the public good at each possible quantity demanded: 2 Figure 5.1 shows the same adding procedure graphically, using the data from Table 5.1. Note that we sum Garcia's and Johnson's J ' willingness-to-pay curves vertically to derive the collective willingness-to-pay curve (demand curve). The summing procedure is downward from the top graph to the middle graph to the bottom (total) graph. For example, the height of the collective demand curve D at 2 units of output in the bottom graph is $7, the sum of the amounts that Garcia and Johnson are each willing to pay for the second unit (= $3 + $4). Likewise, the height of the collective demand curve at 4 units of the public good is $3 (= $1 + $2). Please note that each of these demand curves is not only a willingness-to-pay curve but also a marginal-benefit (MB) curve. Consequently, we can interpret the collective demand curve for a public good as capturing both the collective willingness to pay for each possible unit of a public good as well as the collective marginal benefit of each unit of the public good. FIGURE 5.1 The optimal amount of a public good. Two peopleGarcia and Johnsonare the only \"page g5 members of a hypothetical economy. (a) D, shows Garcia's willingness to pay for various ~ quantities of a particular public good. (b) D; shows Johnson's willingness to pay for these same quantities of this public good. (c) The collective demand for this public good is shown by D, and is found by summing vertically Garcia's and Johnson's individual willingness-to-pay curves. The supply S of the public good is upward sloping, reflecting rising marginal costs. The optimal amount of the public good is 3 units, determined by the intersection of D, and S. At that output, marginal benefit (reflected in the collective demand curve D, ) equals marginal cost (reflected in the supply curve S). P Garcia's ~ \\ ~_ willingness . . . . . . . .. . . Garcia's . . . . .- . . . . . . . . . . . . . . . . . . . . . . . . . - willingness to pay - N D1 4 O 2 3 (a) Garcia . . . Johnson's . . . .. - . . . . . ." . willingness . . .. to pay ... . - . . . . . .. . . . . . . . . . . ." D2 O 2 3 4 5 (b) Johnson F $9 3 De 3 4 (c) Collective demand and supply{ 750f446 > Aa We can now determine the optimal quantity of the public good. The collective demand curve D in & Figure 5.1 measures society's marginal benefit of each unit of this particular good. The supply curve S measures society's marginal cost of each unit. The optimal quantity of this public good occurs where marginal benefit equals marginal cost, or where the two curves intersect. In Figure 5.1c that point is 3 units of the public good. where the collective willingness to pay for the last (third) unitthe marginal benefitjust matches that unit's marginal cost ($5 = $5). As we saw in Chapter 1, equating marginal benefit and marginal cost efficiently allocates society's scarce resources. Cost-Benefit Analysis The above example suggests a practical means, called cost-benefit analysis, for deciding whether to provide a particular public good and how much of it to provide. Let's go through an extended example that applies cost-benefit analysis to an infrastructure project. Concept Suppose the federal government is contemplating several different plans for a highway construction project. Because the economy's resources are limited, any decision to use more resources in the public sector will mean fewer resources for the private sector. There will be an opportunity cost. as well as a benefit. The cost is the loss of satisfaction resulting from the accompanyving decline in the production of private goods; the benefit is the extra satisfaction resulting from the output of more public goods. Should the needed resources be shifted from the private to the public sector? The answer is yes if the benefit from the new highways exceeds the cost of having fewer private goods. The answer is no if the cost of the forgone private goods is greater than the benefit associated with the new highways. lHlustration \