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- You would be more or less willing to buy a house because you expect Tesla's stock to double in value next year a. More, because your wealth has decreased b. More because it has become more liquid c. Less, because it's expected return has fallen relative to Tesla's stock d. More, because it has become less risky relative to the overall stock market.Goods Market: Money Market:C=50 + 0.8(Y-T) MS=490I=120-400r MD=.5y-100rG=110T=50 Suppose there is an increased risk in the financial markets. Show graphically what happens tor, Y, and P in the SR and LR using both IS/LM/FE and AD/AS. Suppose there is a huge drop in consumer confidence. Show graphically what happens to r, Y,and P in the SR and LR using both IS/LM/FE and AD/AS.How do changes in interest rate affect expected consumption? Interprete the effect of interest rate on expected consumption in the light of precautionary savings.
- According to the portfolio theroies of money deman , which of the following statement is true? an increase in the epected rate of inlfation increases the deman for money an increase in the real return of stock increases the demand of the money a decrease in wealth increase the deman for money a decrease in the real return on bonds increases the demand for moneyExplain how the following events will affect the demandfor money according to the portfolio theories of moneydemand:a. The economy experiences a business cycle contraction.b. Brokerage fees decline, making bond transactionscheaper.c. The stock market crashes. (Hint: Consider both theincrease in stock price volatility following a marketcrash and the decrease in wealth of stockholders.)In the table, suppose the equal probabilities for weak economy and strong economy. Security B pays $600 if the economy is week and $0 if the economy is strong. Cash Flow in One Year Security Market Price Today Weak Economy Strong Economy Market index 1000 750 1350 Security B 600 0 Risk-free bond 1280 1350 1350 1) The expected return of security B is %. (Round to 2 decimal places) 2) The risk premium of security B is %. (Round to 2 decimal places) 3) Suppose a new security C has a Market Price Today = 2 * Security B + Risk-free bond, the equal probabilities for weak economy and strong economy. Security C pays $2250 if the economy is week and $1350 if the economy is strong, the expected return of security C is %. (Round to 2 decimal places)
- Consumers deposit their total saving, equaling the value of 1, at the bank at t = 0. The bank invests all deposit in an illiquid asset, yielding R = 1.5 inperiod 2 and has a liquidation value of 1 at period 1. Consumers have the probability of 25 percent of being impatient and consume in period 1. Theremaining patient consumers want to consume in period 2. The bank offers r(1) = 1.10 and r(2) = 1.20 as payment to consumers who withdraw inperiod 1 and period 2 respectively. Suppose that consumers believe at period 1 that 70 percent of the consumers withdraw their deposits at period 1, will this believe trigger a bankrun?Angie owns an endive farm that will be worth $90,000 or $0 with equal probability. Her Bernouilli utility function is u(w) =√w, where w is her wealth level (sum of initial wealth and the worth of the endive farm). 1. Suppose her firm is the only asset she has, that is, she has no initial wealth. What is the lowest price P at which she will agree to sell her endive farm before she knows how much it will be worth? 2. Redo part (1) assuming that she has $160,000 in her bank safe. 3. Compare and discuss your results in parts (1) and (2). What relationship can you find between Angie’s initial wealth level (zero versus $160,000) and her risk aversion?Problem 17-03 (algo) Suppose that a risk-free investment will make three future payments of $500 in 1 year, $500 in 2 years, and $500 in 3 years. Instructions: Round your answers to 2 decimal places. a. If the Federal Reserve has set the risk-free interest rate at 16 percent, what is the proper current price of this investment? $ b. What is the price of this investment if the Federal Reserve raises the risk-free interest rate to 18 percent? $
- Jamal has a utility function U = W1/2, where W is his wealth in millions of dollars and U is the utility he obtains from that wealth. In the final stage of a game show, the host offers Jamal a choice between (A) $4 million for sure, or (B) a gamble that pays $1 million with probability 0.6 and $9 million with probability 0.4. (1) Does A or B offer Jamal a higher expected utility? Explain your reasoning with calculations. (2) Should Jamal pick A or B? Why? I would like help with the unanswered last parts of the questions.Q1: “If the bonds of different maturities are perfectly substituted, their interest rates are more likely to move together”. Is this statement true or false or uncertain? Discuss using the theory of expectation.Excercise: Consider the Diamond-Dybvig model of bank runs utility function is given by U(c) = √c and that the parameter values are R = 4, discount factor ß = 1/3, and π = 2/5 A) How much do type-1 agents and type-2 agents consume in periods 1 and 2 under autarky, i.e., if there are no banks, insurance companies, or markets? What is the ex-ante expected utility that they derive in this scenario? B) How much do type-1 agents and type-2 agents consume in periods 1 and 2 in the "good" banking equilibrium? What is the ex-ante expected utility that they derive in this scenario? C) How many agents are able to execute their claims in period 1 (i.e., withdraw the maximum amount they have been promised) in the bank run equilibrium?