This is not an essay. this is a final questionnaire
ECO 201 Spring 2019 RRCC Final ExaminationStudent Name__________________________________ 1. United States and Canada are trading partners. Following expressions represent Demand and Supply in the markets for oil in Canada and United States: United States:Du.s.:Qd = 390 – 3(P) Su.s.:Qs = - 100 + 2(P) Canada:Dcan.:Qd = 300 – 2(P) Scan:Qs = - 90 + 3(P) a. Calculate Autarky Equilibrium Price and Quantity in both markets. (2 points) b. Assume that the world price is Pw = $85. Which country will become an Exporter? Which country will become an Importer? Why? (1 point) c. Diagrammatically represent the oil market in the U.S., assuming Free Trade. ( 1.5 points) d. Calculate the following measures for the U.S. market of oil, assuming that there are no trade restrictions (Free Trade). Show your work. A. Total Expenditures (0.5 points) B. Consumer Surplus. (0.5 points) C. Total Benefit (0.5 points) D. Total Revenue (0.5 points) E. Producer Surplus (0.5 points) F. Total Cost (0.5 points) G. Total Surplus (0.5 points) e. Diagrammatically represent the oil market in Canada, assuming Free Trade. ( 1.5 points) f. Calculate the following measures for the Canadian oil market, assuming there are no trade restrictions (Free Trade). Show your work. A. Total Expenditures (0.5 points) B. Consumer Surplus (0.5 points) C. Total Benefit (0.5 points) D. Total Revenue (0.5 points) E. Producer Surplus (0.5 points) F. Total Cost (0.5 points) G. Total Surplus (0.5 points) g. Assume that, in the effort to protect the U.S. oil industry, U.S. government implements a $5 per-unit tariff. Calculate the following measures. Show your work. A. Change in Consumer Surplus (1.5 point) B. Change in Producer Surplus (1.5 point) C. Change in Total Surplus (1.5 point) D. Dead Weight Loss from over-production. (0.5 points) C. Dead Weight Loss from under-consumption (0.5 points) 2. Unskilled Labor Market is represented by the following expressions: Ld = 120 – 2(w) Ls = - 40 + 2(w) Government implements a Minimum Wage policy by setting the Wage Rate to Wm = $45. a. Calculate and Diagrammatically represent the change in Consumer Surplus due to the Minimum Wage policy. Show your work. (3 points) b. Calculate and Diagrammatically represent the change in Producer Surplus due to the Minimum Wage policy. Show your work. (3 points) c. Calculate and Diagrammatically represent the change in Total Surplus due to the Minimum Wage policy. Show your work. (3 points) 3. This question is designed to test your understanding of the Supply and Demand model, and the variables that shift Supply and Demand. It will also allow me to glean into your ability to extract as much information from given mathematical expressions as possible. Advice: Please pay attention to differences between initial and new formulae (and yes, formulae is a plural form of formula). Are there differences in slope? Differences in the intercept? Market for Peanut Butter is represented by the following: D:Qd = 80 – 2(P) – Pj S:Qs = - 10 + 2(P) – Pa.b. where Pj is the price of jelly that is considered to be a complement in consumption for Peanut Butter, and Pa.b. is the price of almond butter considered to be a substitute in production for peanut butter. a. Calculate equilibrium price and quantity in the market for Peanut Butter if Pj = 6, and Pa.b. = 2 Graphically represent the market in its initial balance. (2 points) b. Diagrammatically, graphically, and intuitively explain what will happen to the equilibrium price and quantity in the market for peanut butter if the price of jelly drops to 4, and the price of almond butter increases to 4. Use the diagram you have drawn for (a) to show all the relevant changes. (4 points) c. Calculate the change in Consumer Surplus. Show your work. (1.5 points) d. Calculate the change in Producer Surplus. Show your work. (1.5 points) e. Calculate the change in Total Surplus. Show your work. (1.5 points) 4. Identify the following statements as True, False, or Uncertain. Explain your answer. a. You purchased a 3-year bond with the Face value of $2,000, and a coupon rate of 5% in the secondary market a year after it was initially issued. At the time of your purchase the ongoing market interest rate was 6%, and the price you paid was $2,050. (2 points) b. With a decrease in the Required Reserve Ratio, Money Supply has increased, market interest rate has decreased, and the Aggregate Demand has increased, leading to the reduction in unemployment rate. (2 points) c. As a result of a decrease in supply and an increase in demand, equilibrium price of gasoline has increased and the equilibrium quantity has decreased. (2 points) d. If the real interest rate is 3% and the nominal interest rate is 7%, then the anticipated rate of inflation is 4%, and if the actual inflation rate is 6% then borrowers are worse off. (2 points) e. To correct for inflation, government needs to implement contractionary fiscal policies of either decreased government expenditures or increasing taxes. (2 points) 5. Assume that all the U.S.-owned companies use foreign suppliers of intermediate goods. Using the AS-AD model diagrammatically and intuitively explain what will happen in the U.S. Output market if the value of the dollar decreases. (4 points) 6. Last year, newly-issued AT&T bond was sold for $1,000, had a coupon rate of 7%, and matured in 3 years. If the interest rate this year is expected to increase to 8%, and the year after that it is expected to rise further to 9%, what will be the price of the AT&T bond sold in the secondary market? Show your work. (2 points) 7. Assume that the price of the U.S. dollar expressed in terms of Euros is 0.65 in London, while in New York U.S. the price of a dollar is 0.69. Graphically and intuitively explain how arbitrageurs can make riskless profits and quickly eliminate that discrepancy in the value of the U.S. dollar between London and New York. (4 points) 8. Consider a closed economy A (no trade), operating at its Autarky equilibrium Y = C + I + G. Expenditures function components are given by the following expressions: C = 4,000 + 0.5(Y) I = 2,000 + 0.4(Y) – 400(r) G = 1,000 a. Calculate the value of short-run equilibrium output (Y), if r = 10%. Show your work. (2 points) b. Assume that the value for Y you have calculated in (a) is less than the potential level of output, which is 80,000. In order to close the Recessionary Gap, the government decides to increase its expenditures. Solve for the new value of government expenditures, assuming that everything else remains constant. Show diagrammatically the impact in the Output Market. (3 points) c. Assume that the government has to borrow in order to substantiate their higher expenditures. In turn, it leads to a 4% decrease in autonomous consumption and a 6% decrease in autonomous investment. Recalculate the equilibrium value for Y, and on the diagram for (b), show the impact in the Output Market. (4 points) 9. IBM stock is currently trading at $100 per share. An investor purchases one Call option contract on IBM with a $100 strike and at a price of $2.00 per contract. Each options contract represents an interest in 100 underlying shares of stock. For each of the following scenarios determine if the option is in the money, at the money, or out of the money. Explain. a. When the option expires, IBM is trading at $105 (2 points) b. When the option expires, IBM is trading at $101 (2 points) c. When the option expires, IBM is trading at $90 (2 points) d. When the option expires, IBM is trading at $110. (2 points)