Solve the following questions
Suppose that there is a temporary exogenous increase in money supply. (a) Using an AA-DD diagram for a floating exchange rate system, show what happens to national income and the exchange rate as a result of this temporary increase in money supply. Explain what causes any curves to shift. (b) On another AA-DD diagram, show how this same temporary increase in money supply would impact on national income in the short-run if there was a fixed exchange rate system instead. Explain what causes any curves to shift. (c) Under which regime (floating or fixed) is the impact on national income greater? (d) Suppose the increase in money supply is permanent instead. Show on the AA-DD diagram what would happen to output and the exchange rate in the short run and in the long run under a floating exchange rate system. Assume the country begins at a long-run equilibrium.22. Answer each question with a "yes" or "no". No need for an explanation. (If this question is asked in the exam, it might be in the format below (yeso answer) or in a format where possible answers are True/False.) a) Does every game have at least one subgame? b) Does every game have a proper subgame? c) Does every simultaneous game have a proper subgame? d) Does every game have a pure Nash Equilibrium? e) Does every game have at least one mixed Nash Equilibrium? f) Does every game have at least one Nash Equilibrium (either pure or mixed)? g) Does every game have multiple Nash Equilibrium? h) As a result of applying iterative elimination of weakly dominated strategies in a game, does one obtain all pure Nash Equilibria of that game? i) As a result of applying iterative elimination of strictly dominated strategies in a game, does one obtain all pure Nash Equilibria of that game? j) Is every game dominance solvable? k) Is every Nash Equilibrium also a Subgame Perfect Nash Equilibrium? 1) Is every Subgame Perfect Nash Equilibrium also a Nash Equilibrium? m) In simultaneous games, is every Subgame Perfect Nash Equilibrium also a Nash Equilibrium? n) In sequential games, is every Subgame Perfect Nash Equilibrium also a Nash Equilibrium? o) Is it more convenient to present simultaneous games in normal form and sequential games in extensive form? p) Can a weakly dominated strategy be part of a Nash Equilibrium? q) Can a strictly dominated strategy be part of a Nash Equilibrium? r) Is every weakly dominant strategy also a strictly dominant strategy? s) Is every weakly dominated strategy also a strictly dominated strategy? t) Is every strictly dominant strategy also a weakly dominant strategy? u) Is every strictly dominated strategy also a weakly dominated strategy? v) Does every game have a weakly dominated strategy? w) Does every game have a strictly dominated strategy?2. Consider a market containing four identical firms, each of which makes an identical product. The inverse demand for this product is P = 100 - Q. The production costs for firms 1, 2, and 3 are identical and given by C(q;) = 20qi where qi is the output of firm i, i = 1,2,3. The production cost function of firm 4 is C(q4) = 30q4. Assume that the firms each choose their outputs to maximize profits given they each act as a Cournot competitor. a) Derive the Cournot equilibrium output for each firm, the product price, and the profits of all four firms. Remark: in answering (a), you can assume that firms with identical costs (firms 1, 2, and 3) will produce the same output. Under this assumption, the system of four equations (i.e., best replies) reduces to two equations in which you need to solve for firm 4's outputA student spends he n'conspicuc-us consumption' bud , M, on ski lift passes {at} and shoes [1;]. The price ofa ski lift pass is PK an the price of a pair of shoes is p. Her utility from the consumption ofthe two goods is U[x, y} = 2y +y. a] What is the student's budget set? Her budget line? b} Draw a hypothetical diagram representing the choices available to this student, her preferences over those choices, and her consumption choice. c] What is the marginal rate of substitution of ski lift passes for shoes? What is its interpretation? The slope of which line in the above graph shows the marginal rate of substitution? d] What is the equation of an indifference curve? e] What are the two conditions which must be satisfied for utility maximization? Look at the preceding diagram! f} Determine the student's demand function for ski lift passes and herdemand function for shoes. g] if the student's income were to increase, what would happen to the demand curve for skj lift passes? Determine the students inverse demand function for ski lift passes. h} Now assume that M = SEUDPK SEDPy = $150. Draw the budget constraint, the maximum attainable indifference curve, and show the optimal consumption bundle? How many skj passes and how many pairs of shoes will the student purchase? i} Assume again that M = SEDID, Pr: = 55:], Py = SIED. The student receives a S3D gift card which can only be used for ski passes. Draw the new budget constraint and determine the new optimal consumption bu ndte, assuming that the student has to make a choice from scratch [i.e. he receives the cash and the gift card at the same time}. What would the optimal bundle be if the gift card could be used for either good
