Kindly solve the questions attached

Question 2 (20 points} Chapters 4 & S Home is a small open economy with perfect capital mobility. Initially, it is in its long-run equilibrium and domestic and foreign nancial assets are perfect substitutes. Suppose that voters in a large open economy elect a controversial new president. But rather than uniting the people of that country, this president enacts and proposes to enact measures that polarize the citizens of that country. Some of these measures attempt to control or limit the entry of foreigners 'om certain countries and refugees (om anywhere) into the large open economy. Many believe that these (foreign) developments might have positive impacts on the economy (of the small open economy) and imagine that the positive impacts might include the following: 0 Make the (foreign) large open economy a less desirable location for investment capital. 0 Raise business condence in the domestic (home) economy. a) Use the long-run classical model of an open economy to evaluate the impact of deploying this innovation (into space) on the Home country's output, consumption, investment, net exports, real exchange rate, and price level. Explain and support your answer by ONE loanable funds market diagram (for Home) and ONE foreign exchange market diagram. (15 points). b) Based on your answer in part (a), is there anything the central bank can to if it wants to offset the effect of the change in risk premium on the country's real interest rate? Explain. (5 points). b) Suppose that in the recent news you have heard that an economy is at 'full employment'. Explain if this economy has got an unemployment rate at zero percent? (2 Marks) 3. Consider the following consumption function: C = 700 + 0.2Y where C is aggregate Consumption and Y is the aggregate income. a) Explain how you would interpret the coefficients '700' and '0.2'. (2 Marks) b) State any three assumptions of a Keynesian model. (3 Marks) 4. "The term deficit financing has been described as the financing of a deliberately created gap between public revenue and public expenditure, the method of finance being borrowing of a type that results in a net addition to national outlay or aggregate expenditure". a) State the two main ways in which a government can obtain the needed funds in periods of mismatch between public expenditure and revenue. (2 Marks) b) Explain the effect of an increase in income taxes on the level of disposable income, aggregate demand (AD) and government's tax revenue, (3 Marks) 5. "Banks always keep a certain proportion of their total assets in the form of cash, partly to meet the statutory reserve requirement and partly to meet their own day-to-day needs for making cash payments", a) Differentiate between the monetary base and the reserve ratio. (2 Marks) by Explain the term *bank panic'. (2 Marks) c) Explain one reason why do banks have reserve requirement. (1 Mark) 6. "A macroeconomic model is a very useful in the study of macroeconomics and the general behavior of the economy". a) Explain what you understand by the term "macroeconomic model". (1 Mark) b) State two ways in which a macroeconomic model could be described. (2 Marks) c) *A business cycle is an economic model". Explain the relationship that this model depicts, (2 Mark) ECN501Sem Semester 2. 2019 Page 5 of 81. Two points on a demand curve are that at a price of $12, 120 units are demanded and at a price of $6, 240 units are demanded. The demand curve is assumed to be linear. (a) How much does demand increase for each dollar decrease in price? (b) What is the slope of the demand curve? (c) How are these parts (a) and (b) related? (d) Graph the demand curve. Label the intercepts and the axes. (e) Find the inverse demand curve, price as a function of quantity. 2. Suppose that a supply curve is given by S(P) - 20 + 2P and a demand curve is given by D(P) = 200 - 4P. (a) Suppose the current price is $100. i. Is this an equilibrium (ie., does supply equal demand at this price)? ii. If not, is it a shortage or surplus? By how much? ili. What do you expect to happen in this situation? (b) Find the equilibrium price and quantity. (c) Graph this supply and demand curve. Label the axes (including intercepts) and intersection. 3. Consider the market for oil. What do we expect to happen to the equilibrium price and quantity in each of these situations? (a) New drilling technology makes oil extraction more economical at any given price (b) The economy improves more than expected and people drive more (c) Battery technology drives down the price of electric cars, while simultaneously major oil fields begin to decline in production (d) Engineers make gas using cars more efficient, while simultaneously the demand for natural gas (which is produced complementary to petroleum) increases 4. The demand for good r is given by D(x) = 400 - 20P + 10P, + 201 where Pr is the price of good r, Py is the price of some other good y, and I is income. (a) Suppose Py = 10, and / = 5. What is the demand curve? (b) Now suppose further that Pr = 20. What is the quantity demanded? (c) At this point, find each of the following. (Consider 1 unit increases in each of the relevant variables from the starting values.) i. Own price elasticity of demand ii. Cross-price elasticity of demand iii. Income elasticity of demand (d) Answer the following based on your answers above, and briefly (i.e., in one sentence or less) explain your reasoning. At the current parameter values.. i. Is good y a complement or substitute for I? ii. Is the demand for a elastic or inelastic? iii. Is x a normal or inferior good?marginal cost coincides across plants. Intuitively, this indicates that the monopolist does not have further incentives to move production from one plant to another. Exercise #7 - Price discrimination with linear costs Consider a monopoly facing inverse demand function p(q) = 100 - q, and total cost TC(q) = 4q. a) No price discrimination. Assume that price discrimination is illegal. What are the monopolist's optimal output, price and profits? b) First-degree price discrimination. For the remainder of the exercise, consider now that the monopolist can practice price discrimination. In addition, assume that this firm has enough information to practice first-degree (perfect) price discrimination. What are the monopolist's optimal output, price and profits? c) Two block pricing. Assume that the monopolist offers price discounts (i.e., two blocks of units, each sold at a different price per unit). What are the monopolist's optimal output, price and profits? d) Comparison. Compare the monopolist's profit under each of the above pricing strategies, and show that the profits in part (b) are the highest, followed by those in (c), followed by those in part (c), and by those in part (a). Exercise #8 - Third-degree price discrimination with convex costs Consider a monopolist facing two groups of costumers, 1 and 2, with inverse demand functions P1 (q) = a1 - bq and P2(q) = a2 - bq, respectively, where a, > a2 > 0 and b > 0. The monopolist has convex cost function TC(q) = c(q)? where c > 0. a) Set up the monopolist's profit-maximization problem for each group of customers. b) Find its profit-maximizing output and price for each group of customers. ) Assume that a, = taz, where t > 1. Evaluate your above results using a, = taz, and determine how the output difference across groups of customers, and the price difference, are affected by a larger value of t. d) What would happen if t = 1, so the inverse demand functions coincide for both groups of customers