Solvent the following questions
In answering the following questions, please refer to the gure below, which shows the present value of lifetime earnings {PVE} rms are willing to offer to workers who have attained different levels of education. Thom workers who have completed 10 years or more of education {4 or more years after high school} will he offered a wage leading to a prwent value of lifetime income of $2,000,000 {P'VEZ}, while those completing less than lti years of education will he offered a wage leading to a present value of lifetime income equal to $1,000,000 (PVEI). Lines CA and CB show the total cost of different levels of education for two types of workers. Type A workers are low- productivity workers while type B workers are high-productivity workers. E: a E 16 1 7 Education {years} 13. The optimal level of education for a type A worker is a. 12 years. b. 14.5 years. c. 16 years. d. 21} years. 14. The optimal level of education for a type ll worker is a. 12 years. b. 14.5 years. c. 16 years. d. 21} years. 15. Based on the levels of education chosen by each group of workers, one can conclude that a. 16 years of education is not an effective signal since no worker has an incentive to attain that level of education. 11. 15 years of education is not an effective signal since all workers have an incentive to attain that level of education. c. making 16 years of education the qualification for the higher paying job will effectively distinguish high-productivity workers from low-productivity workers. d. there is no way that educational attainment can effectively distinguish high-productivity workers from low-productivity workers. 1. (15 points) For the exercises below, transform the regression equation Yi = 60 +81Xli +$2X2i +pi so that you can use a t-statistic to test for the following restrictions. Show all your steps for full credit. a. (5 points) B1 = 1262 b. (5 points) B1 - 82 = 2 a) If we assume normality of u, then we know the exact distribution of B1, a t student b) If we do not assume normality of u but n is large, then we approximate the sampling distribution 3 2. (15 points) Consider the following model to explain CEO salaries in terms of various factors: salary = 30 + Blsales + $2mktval + 83ceoten + u, where: salary = 1990 compensation, $1000s; sales = 1990 firm sales, millions; mktval = market value, end 1990, mills; ceoten = years as ceo with company Next you perform the following regression: * R2 = 0.2013, SER = 529.67 a) (5 pts) What does each estimated coefficient on the individual variables (and constant term) mean quantitatively (do not worry about standard errors, as they are not given, or the measures of fit)? b) (5 pts) What is the forecasted salary of a CEO working in a firm with sales equal to 5,000 millions, market value equal to 10,000 millions, and 10 years of tenure? c) (5 pts) Eliminating the variable sales from your regression, the estimation regression becomes:" salary = 613.436 + .019sales + .023mktval + 12.703ceoten + u salary = 641.059 + .0369mktval + 11.525ceoten + u R2 = 0.184, SER = 533.58 Why do you think that the effect of mktval has changed now over part b. (very briefly describe)?6. Policy coordination and the world economy Consider an open economy in which the real exchange rate is fixed and equal to one. Consumption, investment, gov- ernment spending, and taxes are given by C = 10 + 0.8 (Y - T), I = 10, G =10, and 7 =10 Imports and exports are given by IM = 0.BY and X =03 Y where Y denotes foreign output. a. Solve for equilibrium output in the domestic economy, given Y". What is the multiplier in this economy? If we were to close the economy-so exports and imports were iden- tically equal to zero-what would the multiplier be? Why would the multiplier be different in a closed economy? b. Assume that the foreign economy is characterized by the same equations as the domestic economy (with as- terisks reversed). Use the two sets of equations to solve for the equilibrium output of each country. [Hint: Usethe equations for the foreign economy to solve for Y' as a function of Y and substitute this solution for Y* in part (a).] What is the multiplier for each country now? Why is it different from the open economy multiplier in part (a)? c. Assume that the domestic government, G, has a target level of output of 125. Assuming that the foreign government does not change G", what is the increase in G necessary to achieve the target output in the domestic economy? Solve for net exports and the budget deficit in each country. d. Suppose each government has a target level of output of 125 and that each government increases government spending by the same amount. What is the common in- crease in G and G necessary to achieve the target output in both countries? Solve for net exports and the budget deficit in each country. e. Why is fiscal coordination, such as the common increase in G and G* in part (d), difficult to achieve in practice?Font Select . Paragraph Styles Editing Graph the following scenario. (Hint: the graph setup in question #8 is a good framework) For a real world example, consider the market for oil. The initial supply and demand curves would be at position 1 (p1). When the suppliers decide to collaborate and supply less oil for every price, this causes a backwards shift in the supply curve, to supply curve 2. This cuts the quantity supplied from quantity 1 (q1) to quantity 2 (q2] and raises the price paid for oil along demand curve 1. We can either shift the demand curve in to curve 2, maintaining previous price levels, but decreasing consumption even more, or we can shift our demand curve out to curve 3, maintaining previous levels of consumption but raising prices. Since there is a tradeoff between having steady prices or steady consumption, the consumers have to make a decision about which is more important to them. In the short run, they will probably decide to pay the higher prices to keep consumption steady (that is, they will shift out to curve 3), but if the prices stay high for a long time, they will start finding ways to economize, (thereby shifting in to curve 2]. 10. What terms are being defined? a. Situation in which the quantity supplied exceeds the quantity demanded for a good or service; price is above equilibrium price. Additional income derived from each additional unit of goods sold. Total Variable Costs divided by quantity sold, TVC/q- Total Fixed Costs divided by quantity sold, TFC/q. To maximize utility by making the most effective use of available resources, whether they be money, goods, or other factors. Costs which do not vary with quantity produced that a firm has to pay in order to produce and sell its goods. Total revenue
