Principles of Microeconomics

Principles of Macroeconomics

Money and Banking

Human Eco

Economic Issues in American History

Final- Econ 504 05/05/2015 Economic History of Old Age- Stanley L. Engerman Large increase in population over 65  Increased longevity of life= increase demand for health care  Rise in demand for separate residences for young and old Issues of historical and economic interest:  Impact on savings rates and economic growth  Human capital formation (improved health and increased life expectation)  Links of age, unemployment, and retirement in inﬂuencing macroeconomic policy Post World War II years  Sharp drop in labor force participation of older men  Small decline for older women  Early male retirement Gratton- budget studies  Desire to pass burden of elderly support to govt tax revenues  Partial basis of passage of social security act Health and Labor Force Participation of Older Men 05/05/2015 Dora L. Costa Health critical component to labor supply  Chronic conditions reduced hours worked eg hearth disease, etc  Up to 45% decline in earnings middle aged men  Poor health main reason for withdrawal from labor force  Health decisions lead to retirement Participation depends on physical job requirements eg lifting etc. Those with low income may not be able to aﬀord to consider themselves disabled Withdrawal from labor force requires resources for consumption  If resources available poor health leads to retirement 1. Measuring Health  poor household more likely to work than rich household  measurement of BMI Waaler- BMI and risk of death correlation  Optimal weight varies with height  Decrease mortality- shorter heavier & taller leaner 2. Union Army Records  Pension Plans o Pensions to recruits disabeled due to military service o Dollar amount depended on degree of disability o Withdrawal from labor force wasn’t a requirement  1890- grant pension to all men at least 65 years of age  for every 12- 2 rejected Analysis in Paper- BMI at ages 50-64 used  Men Classiﬁed: o Farmers o Professional or proprietors o Artisans o Semi- skilled or unskilled labor  Impact of BMI- socioeconomic and demographic characteristics  Choice between retirment and labor force participation depended on well being experienced in each option- income ﬂows Proxies for earnings of wealth  Illiteracy and foreign birth – lower than ave earnings  Marital status- Goldin o Married men more skilled o 1900- married males in manufacturing earned 17% more  Home ownership in cities o Renting room increase income- also indicated economic diﬃculty- Moddell o Servants-indicated aﬄuence o Home ownership- wealth

ECON | 504 | Economic Issues in American History | lecture notes | Final- Econ 504 05/05/2015 Eco

HW Suppose , =+ ̅ + ̅ +  = ̅ + (  ) and =  + () are the consumption and imports functions respectively.   is disposable income. MPC is the marginal propensity to consume and MPI is the marginal propensity to import. Also suppose there is an income tax rate,  , in this economy, a. Derive the government purchase multiplier (similar to what we did in class) . b. Suppose t = 0.05, MPC = 0.75, and MPI = 0.15, what is the value of the multiplier? c. How big is the purchase multiplier here compared to the case where we assumed a closed economy (with NX=0)? d. Suppose current GDP is $500mil but potential GDP is $650mil, by how much should government purchases increase/decrease in order to eliminate this gap? e. Use the AD-AS model to show the outcome of the expansionary/contractionary fiscal policy you have analyzed above.

ECON | 203 | Principles of Macroeconomics | homework | HW Suppose   =+ ̅ + ̅ +

15) Adverse selection is a problem associated with equity and debt contracts arising from A) the lender's relative lack of information about the borrower's potential returns and risks of his investment activities. B) the lender's inability to legally require sufficient collateral to cover a 100% loss if the borrower defaults. C) the borrower's lack of incentive to seek a loan for highly risky investments. D) the borrower's lack of good options for obtaining funds. Answer: A Ques Status: Previous Edition 16) An example of the problem of ________ is when a corporation uses the funds raised from selling bonds to fund corporate expansion to pay for Caribbean cruises for all of its employees and their families. A) adverse selection B) moral hazard C) risk sharing D) credit risk Answer: B Ques Status: Previous Edition 17) Studies of the major developed countries show that when businesses go looking for funds to finance their activities they usually obtain these funds from A) government agencies. B) equities markets. C) financial intermediaries. D) bond markets. Answer: C Ques Status: Previous Edition 18) The countries that have made the least use of securities markets are ________ and ________; in these two countries finance from financial intermediaries has been almost ten times greater than that from securities markets. A) Germany; Japan B) Germany; Great Britain C) Great Britain; Canada D) Canada; Japan Answer: A Ques Status: Previous Edition 19) Although the dominance of ________ over ________ is clear in all countries, the relative importance of bond versus stock markets differs widely. A) financial intermediaries; securities markets B) financial intermediaries; government agencies C) government agencies; financial intermediaries D) government agencies; securities markets Answer: A Ques Status: Previous Edition 17 20) Because there is an imbalance of information in a lending situation, we must deal with the problems of adverse selection and moral hazard. Define these terms and explain how financial intermediaries can reduce these problems. Answer: Adverse selection is the asymmetric information problem that exists before the transaction occurs. For lenders, it is the difficulty in judging a good credit risk from a bad credit risk. Moral hazard is the asymmetric information problem that exists after the transaction occurs. For lenders, it is the difficulty in making sure the borrower uses the funds appropriately. Financial intermediaries can reduce adverse selection through intensive screening and can reduce moral hazard by monitoring the borrower. Ques Status: Previous Edition 2.6 Types of Financial Intermediaries 1) Financial institutions that accept deposits and make loans are called ________ institutions. A) investment B) contractual savings C) depository D) underwriting Answer: C Ques Status: Previous Edition 2) Thrift institutions include A) banks, mutual funds, and insurance companies. B) savings and loan associations, mutual savings banks, and credit unions. C) finance companies, mutual funds, and money market funds. D) pension funds, mutual funds, and banks. Answer: B Ques Status: Previous Edition 3) Which of the following is a depository institution? A) A life insurance company B) A credit union C) A pension fund D) A mutual fund Answer: B Ques Status: Previous Edition 4) Which of the following is a depository institution? A) A life insurance company B) A mutual savings bank C) A pension fund D) A finance company Answer: B Ques Status: Previous Edition 18

ECON | 303 | Money and Banking | study guides | 15) Adverse selection is a pro

The Economics of Money, Banking, and Financial Markets, 9e (Mishkin) Chapter 7 The Stock Market, the Theory of Rational Expectations, and the Efficient Market Hypothesis 7.1 Computing the Price of Common Stock 1) A stockholder's ownership of a company's stock gives her the right to A) vote and be the primary claimant of all cash flows. B) vote and be the residual claimant of all cash flows. C) manage and assume responsibility for all liabilities. D) vote and assume responsibility for all liabilities. Answer: B Ques Status: Previous Edition 2) Stockholders are residual claimants, meaning that they A) have the first priority claim on all of a company's assets. B) are liable for all of a company's debts. C) will never share in a company's profits. D) receive the remaining cash flow after all other claims are paid. Answer: D Ques Status: Previous Edition 3) Periodic payments of net earnings to shareholders are known as A) capital gains. B) dividends. C) profits. D) interest. Answer: B Ques Status: Previous Edition 4) The value of any investment is found by computing the A) present value of all future sales. B) present value of all future liabilities. C) future value of all future expenses. D) present value of all future cash flows. Answer: D Ques Status: Previous Edition 5) In the one-period valuation model, the value of a share of stock today depends upon A) the present value of both dividends and the expected sales price. B) only the present value of the future dividends. C) the actual value of the dividends and expected sales price received in one year. D) the future value of dividends and the actual sales price. Answer: A Ques Status: Revised 1 6) In the one-period valuation model, the current stock price increases if A) the expected sales price increases. B) the expected sales price falls. C) the required return increases. D) dividends are cut. Answer: A Ques Status: Previous Edition 7) In the one-period valuation model, an increase in the required return on investments in equity A) increases the expected sales price of a stock. B) increases the current price of a stock. C) reduces the expected sales price of a stock. D) reduces the current price of a stock. Answer: D Ques Status: Revised 8) Using the one-period valuation model, assuming a year-end dividend of $0.11, an expected sales price of $110, and a required rate of return of 10%, the current price of the stock would be A) $110.11. B) $121.12. C) $100.10. D) $100.11 Answer: C Ques Status: Previous Edition 9) Using the one-period valuation model, assuming a year-end dividend of $1.00, an expected sales price of $100, and a required rate of return of 5%, the current price of the stock would be A) $110.00. B) $101.00. C) $100.00. D) $96.19. Answer: D Ques Status: Previous Edition 10) In the generalized dividend model, if the expected sales price is in the distant future A) it does not affect the current stock price. B) it is more important than dividends in determining the current stock price. C) it is equally important with dividends in determining the current stock price. D) it is less important than dividends but still affects the current stock price. Answer: A Ques Status: Revised 2

ECON | 303 | Money and Banking | study guides | The Economics of Money  Bankin

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