Economics of Enterprise Answers

Consider the following
C= 400+0.4Yd
Yd=Y-T
T=100
I=400-1000r
G=100
(M/P)d=3Y-100r
Ms=1000
P=1
Where C is consumption, Yd is disposable income, T is the level of lump sum taxes, I is investment, r is interest rate, G is government spending, (M/P)d is real money demand, Ms is money supply and P is the price level.
(a) Calculate the IS and LM curve and find the equilibrium level of income and interest rate. What is the level of investment in equilibrium?
(b) Concerned that the current level of income is too low, the government announces an expansionary fiscal policy and increases government spending by 200. Find the new equilibrium values of output and interest rates. By how much has investment been crowded out?
(c) The level of income calculated in (b) is full employment level. What might be expected to happen if government does not increase spending by 200 as in (b)?

. An estimate of the demand function for household furniture produced the following results: F = 0.0036Y1.08R0.16p-0.48 r2 =0.996 Where F = furniture expenditures per household Y = disposable personal income per household R = value of private residential construction per household P = ratio of the furniture price index to the consumer price index
a) Determine the point price and income elasticity’s for household furniture.

an estimate of the demand function for household furniture produced the following results: F= 0.0036Y1.08RR0.16p-0.48 r(2)=0.996 where F= furniture expenditures per household Y = disposible personal income per household R = value of private residential construction per household P = ratio of the furniture price index to the consumer price index
a. determine the point price and income elasticities for household furniture.
b. what interpretation would you give to the exponent for R? Why do you suppose R was included in the equation as a variable?
c. If you were a supplier to the furniture manufacturer, would you have preferred to see the analysis performed in physical sales units rather than dollars of revenue? How would this change alter the interpretation of the price coefficient, presently estimated as -0.48?

Muscarella Inc. has the following balance sheet and income statement data:
Cash $ 14,000 Accounts payable $ 42,000
Receivables 70,000 Other current liabilities 28,000
Inventories 210,000 Total CL $ 70,000
Total CA $294,000 Long-term debt 70,000
Net fixed assets 126,000 Common equity 280,000
Total assets $420,000 Total liab. and equity $420,000
Sales $280,000
Net income $ 21,000
The new CFO thinks that inventories are excessive and could be lowered sufficiently to cause the
current ratio to equal the industry average, 2.70, without affecting either sales or net income.
Assuming that inventories are sold off and not replaced to get the current ratio to the target level,
and that the funds generated are used to buy back common stock at book value, by how much
would the ROE change?

an estimate of the demand function for household furniture produced the folloing results: F= 0.0036Y1.08RR0.16p-0.48 r(2)=0.996 where F= furniture expenditures per household Y = disposible personal income per household R = value of private residential construction per household P = ratio of the furniture price index to the consumer price index a. determine the point price and income elasticities for household furniture. b. what interpretation would you give to the exponent for R? Why do you suppose R was included in the equation as a variable? c. If you were a supplier to the furniture manufacturer, would you have preferred to see the analysis performed in physical sales units rather than dollars of revenue? How would this change alter the interpretation of the price coefficient, presently estimated as -0.48

"(with 1985=100) on housing starts in the united states per year from 1986 to 1997 given in the table below, forecast the index for 1998 using a three year and a five year moving average. which of your estimates is better if there actual index of housing starts in the united states for 1998 is 163?"

A project has an initial requirement of $261,000 for fixed assets and $27,000 for net working capital. The fixed assets will be depreciated to a zero book value over the 4-year life of the project and have an estimated salvage value of $78,000. All of the net working capital will be recouped at the end of the project. The annual operating cash flow is $96,200 and the discount rate is 13 percent. What is the project's net present value if the tax rate is 35 percent?