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Urgent economics help?!?! watch

    • Thread Starter

    I have a few questions on my final I need any help with..

    3:Consider a farmer who has access to a bond market where she can borrow or lend at the interest rate R. Assume also that her money holdings (nominal balances) and the price level stay constant over time.
    a) Write down the “life-time” budget constraint of this farmer, assuming that her planning horizon extends only two periods into the future.
    b) Assume that due to unusually good weather conditions, her agricultural production increases for two periods. After the second period, her production falls back to the initial level. How would this affect her consumption, saving and work effort decisions? What is her MPC (Marginal Propensity to Consume) in this case?
    c) Now suppose that the farmer’s grandfather, who is also a good farmer himself, passes away after a tragic accident and she inherits her grandfather’s field. This doubles her production in both periods. How does this affect her budget constraint, consumption, saving and work effort decisions? What is her MPC in this case?

    5:In a beautiful afternoon, under a clear blue sky, by the seashore right next to warm, inviting waters, the following conversation takes place between two old friends on a deserted island :
    Robinson: Hey Friday!! Look what I found today under the palm three!!
    Friday: What is it?
    Robinson: I don’t really know... It is some shiny and colorful pieces of paper with some numbers printed on them.
    Friday: Oh!! Wow!! What are you going to do with them?
    Robinson: Well... I don’t know. I thought I would decorate the palm trees with them. Friday: Actually, I have a better idea. Why don’t you give me some of that in exchange for my fish and then I will give them back to you in exchange for your coconuts. This way, we won’t need to carry that fish and coconuts with us all the time when we want to trade.
    Robinson immediately recalls the painful memories of the past when he had to confront those mean monkeys only by himself when they invaded their territory even though Friday had earlier promised to back him up.
    Robinson: I am not sure Friday. What if you don’t accept it in exchange for your fish after I accept them in exchange for my coconuts?
    Friday: Then next time you don’t accept it in exchange for your coconuts and we, once again, have to carry all that stuff with us when we want to trade. That would be bad for both of us. Why would I want to do that?
    Robinson: Hmm... I have to think...
    a) What are the factors other than trustworthiness that determine Robinson’s response to Friday’s proposal? Discuss the advantages to using fiat money.
    b) One day Robinson finds another batch of colorful shiny pieces of paper and starts using them for exchange purposes. Given that fishing and coconut collection capacities remained constant on the island, how would this affect the equilibrium quantities and prices of fish and coconut?
    c) Assume that both Robinson and Friday refuse to pay more or less for fish and coconut. How would the increase in the quantity of money in circulation would affect the velocity of money (that is, the average number of times a unit of currency changes hands during a specific time period)?

    6:Consider a temporary downward parallel shift of the production function. Answer the following questions using graphs.
    a) How does this affect the equilibrium interest rate?
    b) What is the affect on equilibrium consumption and work effort?
    c) How does the equilibrium real wage change?
    d) What happens to the equilibrium price level?

    I am looking for any help at all I can get with these, so any suggestions would be much appreciated.
    • Thread Starter

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Updated: September 29, 2011

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