1. Jones is asked to recall the correct representation of purchasing power parity. St is the exchange rate at time t, expressed in units of foreign currency per domestic currency. ID and IF are the expected rates of inflation in the domestic and foreign countries, and E( ) denotes an expected value. Which of the following is th
What are some causes for inflation? What are some of the cost and how do expectations inluence the effects of inflation.
Explain the different views on the relations between inflation and growth.
Define inflation and distinguish a real concept from a nominal concept. State two important costs of inflation.
Calculate present value; interest; NPV; IRR etc. on spreadsheet --- A plan is made to start a school with a one-year training course. The plan involves running this school for 10 years. In the first four years 20, 30, 40 and 50 students are expected to enroll, while for the remaining years the number is assumed to grow by 5%
Smooth-Top is a British Columbia manufacturer of desktops. They are considering an increase of their capacity. Consulting engineers have submitted two routes to accomplish this: (1) install a new production line that would produce wood desktops finished with hardwood veneer and (2) install a new production line that would produc
Clarkwood is a British Columbia wood products manufacturer. They are considering a modification to their production line that would enable an increase in their output. One of Clarkwood's concerns is that the price of wood is rising more rapidly than inflation. They expect that because of this their operating cost per unit will r
How much would you expect to receive for a nominal interest rate in Holland if funds can be invested in the U.S. at a rate of 7% when inflation is expected to be 4% in the U.S. and 8% in Holland? The company cost of capital for a firm with a 60/40 debt/equity split, 8% cost of debt, 15% cost of equity, and a 35% tax rate
A country has a lower inflation rate than all other countries, It has more rapid economic growth. The central bank does not intervene in the foreign exchange market. What can you say about each of the following (and why)?: a. The exchange rate? b. The current account balance? c. The expected exchange rate? d. The interest
U.S. GDP is expected to increase during the next 5 years. Unemployment seems to be taking a downturn as well. However inflation is expected to be higher than normal during this period as well with unemployment. As a financial analyst, how would you evaluate this forecast for your firm?
1. Explain the difference between nominal and real variables, and give two examples of each. According to the principle of monetary neutrality, which variables are affected by changes in the quantity of money? 2. According to the quantity theory of money, what is the effect of an increase in the quantity of money? 3. It is
Hello, if someone could please assist me with this question from a text, we will be having this as an essay question and I need to familiarize myself with this topic. Thank you. What are the various incentives that investors have to hold TIPS (Treasury Inflated Protection Securities)? Why does the U.S. Treasury also hav
What is the difference between cost-push and demand-pull inflation? Which was the primary cause of inflation in the early 1970's? What type of inflation has the Federal Reserve been trying to prevent in 1998 and 1999?
1. What effect would a period of rapid inflation likely have on the role of money as a store of value, and on people's attitudes toward money generally? Why? 2. in 1973-75, real interest rates were actually negative. (a) what would a negative real interest rate mean? (b) what could explain such an unusual development?
In 1955, the last year when social security payments included only old-age payment (before disability) payments that year totaled $4.9 billion. For 2001, the figure was $433 billion (excluding Medicare, which was another $218 billion). During that period, the CPI rose at an average annual rate of 4.2%, and the number of people
What is the difference between real output and potential output?
In a speech in January 2004, Fed chairman Alan Greenspan said, " I am increasingly of the view that, at a minimum, monetary policy in the last two decades has been operating in an environment particularly conducive to the pursuit of price stability. The principal features of this environment included (1) increases political sup
On July 20, 1993 Alan Greespan, chairperson of the Board of Governors of the Federal Reserve System, testified before a congressional committee. He said: "The role of expectations in the inflation process is crucial. Even expectations not validated by economic fundamentals can themselves add appreciably to wage and price pres
Section 1: Graphical Analysis: For each question (numbers 1 through 14), choose an answer from the choices (A through E) below: A) The curve shifts to the right (outward) B) The curve shifts to the left (inward) C) Movement along the curve D) The market outcome is not on the curve E) No impact For Questions 1 thr
18. (Rational Expectations) Using an AD-AS diagram, illustrate the short-run effects on prices, output, and unemployment of an increase in the money supply that is correctly anticipated by the public. Assume that the economy is initially at potential output.
Suppose that in 2009 there is a sudden, anticipated burst of inflation. Consider the situations faced by the following individuals. Who gains and who loses? a. A homeowner whose wages will keep pace with inflation in 2009 but whose monthly mortgage interest payments to a savings bank will remain fixed b. An apartment land
Traditional means of controlling inflation have to be used carefully as they can have unintended consequences. Interest rate increases negatively impact stock markets. At the same time, inflation must be kept within target limits, three per cent or less. Can alternatives to traditional monetarist devices be identified in mo
When Oil goes up, what is affected in the American economy and how? very briefly explain what happens (if anything) to each and why Consumption Investment Government Spending Imports Exports National Income Aggregate Supply Aggregate Demand Inflation Exchange Rates Interest Rates
Do the following events cause the dollar to appreciate or depreciate against the Euro? 1. Health experts discover that red wine, espacially French or Italian red wine, lowers cholesterol. 2. GDP falls in nations across Europe. 3. The United States experiences a higher inflation rate than does Europe. 4. The United States
Finance example with regard to retirement and investment portfolios Background for Problem: Old Alfred Road, who is well known to drivers on the Maine Turnpike, has reached his seventieth birthday and is ready to retire. Mr. Road has no formal training in finance but has saved his money and invested carefully. Mr. Road own
As I understand it, real wages do increase over time , as an economy grows and productivity increases. If this is the case , why can we not all afford to buy very expensive goods / services in 50 , or 100 years time ? It can not be because of inflation as by definition real wages have factored inflation in.
A Church wants to purchase a GMC Van for $12,000 in Year 0. It will provide income of $6000 real dollars (R$) every year for Years 1 and 2. At the end of Year 2, it will be sold at a market value of $3500 real dollars (R$ in Yr 0 dollars). Also, ? The GMC Van is depreciated by the straight-line method with a depreciable life
I am wondering, what is the general assessment of the US economy over the next year or two in tems of Real GDP growth and inflation....ignoring business cycle effects...just in tems of current conditions regarding the aggregate supply (AS) and aggregate demand (AD) sides of the US economy and their COMBINED EFFECT on Real GDP Gr
At what price /gas ($/gal) will the life time cost of these 2 vehicles be the same with a MARR of 5%? Ignore inflation and keep all other O&M cost the same. Civic Hybrid Honda Insight --------------------------------------------------------------------------
Here is a Consumer Price Index and the average annual price of gas for 10 yrs interval. 1990 2000 ---------------------------------------------------------------- CPI 120.7 152.3 Price of Gas (A$) 0.99 1.40 What is the Real p