Macroeconomics Answers

Refer to the figure below. It is efficient for this farmer to:

MC1 Q7

Question 29 options:

grow 750 bushels of wheat and 125 bushels of corn.


grow 250 bushels of wheat and 500 bushels of corn.


grow 1000 bushels of wheat and 250 bushels of corn.


grow 1000 bushels of wheat and 500 bushels of corn.

How to calculate the value of the equilibrium national real gdp graph is also given mentioning AE and. AE =y on x axis real gdp is given and on y axis AE is given

Suppose there are only two individuals in the market for some product. Individual A’s inverse demand equation is P = 8 - 0.5 QD and B’s inverse demand equation is P = 10 - QD

a) Derive the equation showing A’s quantity demanded as a function of price. Ie: A’s demand equation

b) Derive B’s demand equation

c) Derive the aggregate (market) inverse demand equation. Ie: the equation showing price as a function of aggregate demand

d) Derive the aggregate (market) demand equation

Let’s find the term structure of interest rate. Find interest rates in different maturities, 3 month, 3 year, 5year, 10 year, 20 year Treasury yields from January of 2006 and December of 2007 (Select monthly data as a frequency). 1) Plot them in excel, and explain the changes of the term structure interest rates for the periods (copy and paste the graph with your answers).

2) Find a month when the future short term interest rates expected to rise and a month when the future short term interest rates expected to fall. Explain the term structure of interest rates using the liquidity premium theory for the months you chose. 3. Select any 5 stocks, and find their annual rate of return from the end of December 2018 to the end of December 2019. You need to choose at least 2 stocks that had dividends. The data can be found from Yahoo.com and the history price can be found under finance section

1. Find the monthly yield data for 10 year Treasury, AAA, and BAA corporate bonds from January of 2007 and December of 2008 (3 points).

1) Plot them and explain the relation between interest rates and default risk.


2) Explain the impacts of default risk on interest rates when there was a financial crisis using the data.

Considering the definition current account as changes in the country's net foreign assets (NFA) position: CA (t) = ΔNFA (t) = B(t)- B (t-1) = X(t) -M (t) + rB(t-1), where B (t-1) is the stock of net foreign assets at the beginning of the period. Assuming that interest rate r is constant and so is the growth rate of income, g= Y (t)/ Y(t-1) -1 derive the relationship between the CA and NFA in steady-state.

Considering the definition current account as changes in the country's net foreign assets (NFA) position: CA (t) = ΔNFA (t) = B(t)- B (t-1) = X(t) -M (t) + rB(t-1), where B (t-1) is the stock of net foreign assets at the beginning of the period. Assuming that interest rate r is constant and so is the growth rate of income, g= Y (t)/ Y(t-1) -1 derive the relationship between the trade balance (X-M) and and the net stock of foreign assets (B) that stabilizes (B/Y).

Considering the definition current account as changes in the country's net foreign assets (NFA) position: CA (t) = ΔNFA (t) = B(t)- B (t-1) = X(t) -M (t) + rB(t-1), where B (t-1) is the stock of net foreign assets at the beginning of the period. Assuming that interest rate r is constant and so is the growth rate of income, g= Y (t)/ Y(t-1) -1 derive the inter-temporal external solvency condition.

Assuming PPP holds and that real exchange rate doesn´t change. Additionally we assume fully mobile internationally capital and consumption growth its the same among countries.

i) Show by using Fisher equation - r(t) = i(t) - E(t) (π (t+1)) that standard expression for Uncovered interest rate parity (UIP) follos from previous assumptions;

ii) Considering a test of UIP with the follow regression: E (e (t+1))- e(t) = α + β (i (t) - i* (t)) + v(t). The i* (t) its given and p*(t) = E(p*(t+1))=0 where p* its the log of the foreign price level and p the domestic prices. The domestic policy makers set i (t) according to a price targeting rule, i(t) = r*(t) + µ p(t) + u(t) where u is serially uncorrelated and independent of v. Demonstrate that β will biased away from 1 if µ its different from zero;

iii) Demosntrate the condition under which β <0.

Sketch how in the pure neoclassical model the fiscal multiplier is smaller than one and which is the intution for this result? The fiscal multiplier can be negative? Which implications of a fiscal multiplier negative as well as from a multiplier that is positive and below 1?