Macroeconomics Answers

QUESTION 26

High monopoly profits are possible.

1. In a perfectly competitive market.
2. If each of the oligopolists cooperates in holding down output.
3. If each of the oligopolists lower their price.
4. If each of the oligopolists increase their output.
5. All of the above.  

QUESTION 27

The way out of a prisoner’s dilemma is to find:

1. Somebody to step in for you.
2. A way to penalize those who do not cooperate.
3. A way to penalize those who do cooperate.
4. A way to reward those who do not cooperate.
5. A needle in a haystack.

QUESTION 28

Oligopolists may choose to act in a way that generates:

1. Equal profits for all competitors.
2. The largest surplus for consumers.
3. Pressure on each firm to stick to its agreed quantity of output.
4. All of the above.
5. None of the above.

QUESTION 22

Oligopoly arises when a small number of large firms:

1. Exit the market.
2. Enter the market.
3. Have most of the sales in an industry.
4. Have only a minority of the sales in an industry.
5. All of the above.

QUESTION 23

We typically characterize oligopolies by:

1. Mutual independence.
2. Mutual interdependence.
3. Mutual exclusivity.
4. Independent decision-making.
5. All of the above.

QUESTION 24

By acting together, oligopolistic firms can:

1. Charge a higher price.
2. Hold down industry output.
3. Divide the profit among themselves.
4. All of the above.
5. None of the above.

QUESTION 25

Because cartel agreements provide evidence of collusion:

1. Firms frequently present them in court to prove the existence of a contract.
2. Firms frequently use them.
3. They are rare in the U.S.
4. They are common in the U.S.
5. They only can exist in California.

QUESTION 19

Critics of market-oriented economies argue that society does not really need:

1. Food to survive.
2. Dozens of different automobiles.
3. Any more automobiles.
4. Decision-makers.
5. All of the above.

QUESTION 20

Advertising causes a firm’s perceived demand curve to become:

1. Perfectly inelastic.
2. More inelastic.
3. Engrossed.
4. More elastic.
5. Perfectly elastic.

QUESTION 21

Advertising causes the:

1. Demand for the firm’s product to increase.
2. Demand for the firm’s product to decrease.
3. Supply of a firm’s product to increase.
4. Supply of a firm’s product to decrease.
5. Death of all humankind.

what does the exchange rate affect?

Consider two risky securities A and B, as well as a risk-free bond. Their average returns and standard deviations are presented in the table below. The correlation between the Securities A and B is 0.3.

Average Return Standard Deviation

Security A 8% 12%

Security B 13% 20%

Risk-free bond 5% 0%

a) What is the average return and standard deviation of an equally-weighted portfolio in A and B?

b) Assume that the portfolio from a) is the efficient market portfolio M. If the covariance between Security A and the efficient market portfolio M is Cov (A,M) =

0.0108, and the covariance between Security B and the efficient market portfolio M Cov (B, M) is 0.0236, what is the expected return of Securities A and B, according to the CAPM?

c) What are the Jensen’s alphas of the two securities? Based on the alphas, how can

investors improve their portfolio performance?

Consider a Multi-Index Model (MIM) specification for the portfolio return:

𝑟𝑝𝑡 = 𝛼𝑝+𝛽𝑝1𝐹1𝑡 + 𝛽𝑝2𝐹2𝑡 + 𝜀𝑝𝑡

a) Derive the functional form for the variance of 𝑟𝑝𝑡, denoted as 𝜎𝑝2.

b) In deriving 𝜎𝑝2, what are the key assumptions you made under the MIM?

c) If you estimate the above MIM as a regression, and you find that the variance of the residual return 𝜀𝑝𝑡 represents a substantial portion of 𝜎𝑝2 i.e. low 𝑅2 , how

would you interpret this finding? [Hint: More than 1 reason.]

What would be the implications of import quotas ver's licensing and other administrative barriers to Heckscher Ohlin trade model?

Y = C + I + G

C = a + b(Y - T)

G = gY

a. Find the equilibrium national income(Y)

b. what further restriction on the parameter is needed for solution to exist

If the price of demand is 1.5 and price decreases by10%,then quantity demanded?

A town with residents is planning of constructing a Public Park. The park will either be built  or not . The total cost is C. Consumers have preferences over the park and a private consumption of good  given by. The price of  is.

a. If the income level of consumer  is, what is the maximum contribution that consumer will be willing to make to make this park? I.e. Consumers reservation Price (5marks).

b. What is the total maximum cost  for which building the park is Pareto optimum for some allocation of costs to all consumers? (5 marks).

c. Assume that  is less than . The Government is proposing a fixed contribution plan where everyone chips in . If anyone backs out, the project will not get built. Is building the project Nash equilibrium? Is not building the project Nash equilibrium? Why? (10 marks).