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problem 7

# problem 7 - According to your research the average student...

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ECON 162B-A0, A1 Kenny Christianson Fall 2010 due: November 12 PROBLEM SET NUMBER SEVEN 1. Why are borrowers harmed by unanticipated deflation? Explain. 2. Suppose that three people lend \$10,000 each for one year to their brothers-in-law. Who is better off? a. Jenny lends at 10% interest, and inflation is 12% for the year. b. Kyle lends at 8% interest, and inflation is 6% for the year. c. Lisa lends at 5% interest, and inflation is 1% for the year. 3. Suppose that you and your friends decide to construct a price index for college students. After careful research, you find the following information on prices for selected goods in 1990 and 2000: GOOD 1990 PRICES 2000 PRICES pens \$.25 \$1.00 notebooks 1.00 3.00 textbooks (average price) 25.00 60.00 pizza 4.00 10.00 compact disks 7.50 20.00 16 ounce bottle of soda .40 1.00
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Unformatted text preview: According to your research, the average student consumes 20 pens, 6 notebooks, 8 textbooks, 25 pizzas, 10 compact disks, and 10 bottles of soda per semester. Construct a student price index for 1990 and 2000. Assume that 1990 is the base year. How much (by what percentage) did student prices change in the ten-year period? 4. Using labor supply and demand graphs for both the Keynesian and classical models, show the effects of a decrease in the demand for labor. Assume that both markets start in equilibrium. 5. Using the labor market, production function. and AS/AD graphs of the classical model, show the effects of an increase in the labor supply. What are the effects on real wages, the quantity of labor, real GDP, and prices? Explain and show graphically....
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