1. Louise McIntyre’s monthly gross income is $2,000. Her employer withholds $400 in federal, state, and local income taxes and $160 in Social Security taxes per month. Louise contributes $80 per month for her IRA. Her monthly credit payments for VISA, MasterCard, and Discover card are $35, $30, and $20, respectively. Her monthly payment on an automobile loan is $285. What is Louise’s debt payments-to-income ratio? Is Louise living within her means? Louise’s Gross Income| =| $2,000|

Less: Income taxes| =| -400|
Less: Social Security Tax| =| -160|
Less: IRA contribution| =| -80|
Net take-home pay| =| $1,360|
Her monthly payments on VISA, MasterCard, Discover Card, and a car loan add up to $370 per month. Louise's debt payments to income ratio is 370 to 1,360, or 27.2 percent. This ratio exceeds the recommended 20 percent figure. Therefore, Louise is overextended her means. | | |

2. Calculating Debt Payments – to - Income Ratio. Suppose that your monthly net income is $2,400. Your monthly debt payments include your student loan payment, a gas credit card and they total $360. What is your debt payments – to – income ratio?

Monthly net income = $2,400
Total monthly debt payments = $360
Debt-payments-to-income ratio = $360 ÷ $2,400 = 0.15 or 15%

3. Dave borrowed $500 for one year and paid $50 in interest. The bank charged him a $5 service charge. A- What is the finance charge on this loan? $50 + 5 = $55
B- Dave borrowed $500 on January 1, 2006, and paid it all back at once on December 31, 2006. What was the APR? $55 on $500 or 11% APR
C- If Dave paid the $500 in 12 equal monthly payments, what is the APR? APR= 20.3%

4. Calculating Simple Interest on a Loan. Damon convinced his aunt to lend him $2,000 to purchase a plasma digital TV. She has agreed to charge only 6 % simple interest, and he has agreed to repay the loan at the end of one year. How much interest will he...

...ECON112 Macroeconomics ProblemSet3 *Solution* Fall 2010 (Instructor: Li, Yao; TA: Fok Pik Lin, Astor)
-----------------------------------------------------------------------------------------------------------------------------------Posted: Monday, November 1, 2010 Due: 5:30 PM Monday, November 8, 2010 40 marks total
Part I: True/False/Uncertain Please justify your answer with a short argument for each question and
draw a diagram if necessary. (15 marks, 3 marks each: 1 mark for correct judgment and 2 marks for correct argument)
1. Suppose that workers in the Republic of Communia are highly unionized, while workers in the Republic of Individuela are not. In all other respects, the two countries are exactly the same. Then Communia is likely to have a higher natural level of output than Individuela. False. In our model of the labor market, the level of unionization is captured by the
Communia is likely to have a higher natural rate of unemployment than Individuela. Hence Communia is likely to have a lower natural level of output than Individuela.
1
2. Suppose there is a decrease in the price level from P to P’. Given the stock of nominal money, M, this leads to an increase in the real money stock, M/P, which shifts the LM curve down. This implies that the AD curve shifts to the right.
3. When output is below the natural level of output, the actual price level is lower than the...

...
ProblemSet #3: Edited Version
Page 100 – Problems and Applications
1. The three functions of money are medium of exchange, unit of account, and store of value. Medium of exchange refers to money being accepted as everyday currency, that you can go into a store and be confident in the fact that they will accept your money for goods and services. Store of value is defined as the ability of money to retain its value of time; in other words, $100 today will be $100 tomorrow, next month or 6 months from now. Unit of account provides terms in which prices are quoted; meaning that a car dealer will sell you a car for $20,000 instead of 400 cows.
a. A credit card satisfies a medium of exchange and store of value…It does not satisfy a unit of account
b. A painting by Rembrandt is store of value it is not a medium of exchange or unit of account
c. A subway token within the subway satisfies all three functions of money. However, outside of the subway it is not seen as an unit of account or medium of exchange.
a. Actually outside of the subway system, a token satisfies none of the functions of money because even though your $2 dollar subway token will remain $2 for the next time you use it – it cannot be used for any sort of ‘store of value’ outside the system…making each function of money not applicable to the token.
Professor Smith – A silly mistake by me to do the problems that were...

...ProblemSet3
Macroeconomics, ECON 2123
Sections L3 and L4 P. Sen
Posted 9.11.14.
Due 5 PM 17.11.14.
-----------------------------------------------------------------------------------------------------------------------------------
100 marks total
Part I: True/False/Uncertain Please justify your answer with a short argument for each
question and draw a diagram if necessary. (25 marks, 5 marks each: 2 marks for correct
judgment and3 marks for correct argument)
1. Suppose that workers in the Republic of Communia are highly unionized, while workers
in the Republic of Individuela are not. In all other respects, the two countries are exactly
the same. Then Communia is likely to have a higher natural level of output than Individuela.
2. Suppose there is a decrease in the price level from P to P’. Given the stock of nominal
money, M, this leads to an increase in the real money stock, M/P, which shifts the LM curve
down. This implies that the AD curve shifts to the right.
3. When output is below the natural level of output, the actual price level is lower than the
expected price level.
4. In terms of changing output, monetary policy is relatively more effective when the AS
curve is relatively flat, while fiscal policy is more effective when the AS curve is relatively
steep.
5. The aggregate demand relation slopes down because at a higher price level, consumers
wish to purchase fewer goods.
Part II: The...

...ECON 213
PROBLEMSET3
Name: ___Krystal Logsdon_____________________________________
ProblemSet3 is to be completed by 11:59 p.m. (ET) on Monday of Module/Week 6.
1. Data for the market for graham crackers is shown below. Calculate the elasticity of
demand between the following prices.
Price of
crackers
Quantity Demanded (per month)
$3
80
$2.5
120
$2
160
$1.5
200
$1
240
$1.00 - $1.50: __*_-0.333__________________________
$1.50 - $2.00: __*__-0.6___________________________
$2.00 - $2.50: ___*_-1_____________________________
$2.50 - $3.00: __*___-1.66_________________________
If the price of graham crackers is $2.50 should firms raise or lower their prices if they
want to increase revenue? Explain this in terms of elasticity.
*The firm should lower their prices. The elasticity of demand increases.
Page !1 of !4
ECON 213
2. Assume the competitive market shown below faces a short run price of $10. Using
the graph below, identify the following:
Profit maximizing output:
*_MC=MR___Q=110________
Approximate mark up over cost ___*__There would be no mark up over cost___
In the long run, the price falls to $7.50. Why does this happen?
*The business operates at the minimum average total cost (ATC), which at $7.50 is equal
to the marginal cost.
Price, Cost
What is the new profit maximizing output? _*_Minimum Average Total Cost
(ATC)____Q=90_________________...

...ProblemSet3
Name: Lauren Hensley
ProblemSet3 is to be completed by 11:59 p.m. (ET) on Monday of Module/Week 6.
1. Data for the market for graham crackers is shown below. Calculate the elasticity of demand between the following prices.
Price of crackers
Quantity Demanded (per month)
$3
80
$2.5
120
$2
160
$1.5
200
$1
240
$1.00 - $1.50: -0.333
$1.50 - $2.00: -0.6
$2.00 - $2.50: -1
$2.50 - $3.00: -1.66
If the price of graham crackers is $2.50 should firms raise or lower their prices if they want to increase revenue? Explain this in terms of elasticity.
The firm should lower the price as we see the elasticity increases
2. Assume the competitive market shown below faces a short run price of $10. Using the graph below, identify the following:
Profit maximizing output: MC=MR, Q=110
Approximate mark up over cost There is no mark up
In the long run, the price falls to $7.50. Why does this happen? Ther are no fixed costs and the firm operates at minimum ATC which is equal to marginal cost
What is the new profit maximizing output? Min ATC, Q=90
3. A local hardware store is trying to decide whether to stay open. They have found that their industry is extremely competitive and profits have shrunk considerably. Knowing that you have taken an economics course the owners have asked for your opinion. Draw a...

...Econ 122B ProblemSet3 Name(Print)______________________
Due in class on March 3 UCI ID____________________________
1. In class, we have talked about the following simple wage equation
wage female u ,
where female is a dummy that is equal to 1 if female, and 0 otherwise.
Given the OLS estimates ˆ and ˆ for the above model, what are the OLS estimates
for a model with a male dummy instead of a female dummy, i.e., what are aˆ and bˆ
for wage a bmale u ? (Hint: female = 1‐ male)
2. Consider the following model:
log(Y ) X 1 D1 2 D2 u ,
where Y = annual earnings of MBA graduates,
X = years of experience,
D1=1 if Harvard MBA; =0 otherwise,
D2=1 if Wharton MBA; =0 otherwise.
(1) What are the expected signs of , 1 and 2 ?
(2) How would you interpret 1 and 2 (hint: what is the base group here;
note that earnings are in the log form)?
(3) If 1 2 , what conclusion would you draw?
3. Suppose you are interested in learning if there are seasonal patterns in party
supply sales in OC, that is, you would like to know if sales in a particular season are
significantly different from other seasons. Suppose the following model is
estimated:
sales 1 D1 2 D2 3 D3 u ,
1...

...ProblemSet3ProblemSet3 is to be completed by 11:59 p.m. (ET) on Monday of Module/Week 6.
1. Data for the market for graham crackers is shown below. Calculate the elasticity of demand between the following prices.
Price of crackers
Quantity Demanded (per month)
$3
80
$2.5
120
$2
160
$1.5
200
$1
240
$1.00 - $1.50: Elasticity of demand equals .45; favoring inelasticity
$1.50 - $2.00: Elasticity of demand equals .78; favoring inelasticity
$2.00 - $2.50: Elasticity of demand equals 1.29; favoring elasticity
$2.50 - $3.00: Elasticity of demand equals 2.2; favoring elasticity
If the price of graham crackers is $2.50 should firms raise or lower their prices if they want to increase revenue? Explain this in terms of elasticity.
The firm should lower their prices 50 cents in an attempt to raise revenues. The elasticity of demand from 2.50-2.00 is 1.29, meaning with a reduction in prices there would be an elastic effect on quantity demanded. The maximum profit would be reached at the price of $2 because of the increased in demand with the price reduction.
2. Assume the competitive market shown below faces a short run price of $10. Using the graph below, identify the following:
Profit maximizing output: 110
Approximate mark up over cost: $2 per unit
In the long run, the price falls to $7.50. Why does this happen?
An increase in demand would temporarily increase the...

...Problemset3 (Answer)
7.6. A farmer uses three inputs to produce vegetables: land, capital, and labor. The production function for the farm exhibits diminishing marginal rate of technical substitution.
a) In the short run the amount of land is fixed. Suppose the prices of capital and labor both increase by 5 percent. What happens to the cost-minimizing quantities of labor and capital for a given output level? Remember that there are three inputs, one of which is fixed.
b) Suppose only the cost of labor goes up by 5 percent. What happens to the cost-minimizing quantity of labor and capital in the short run.
a) The amount of land used in production is fixed in the short-run. Hence, in the short-run the farmer chooses amount of capital and labor. It follows that cost-minimizing quantities of labor and capital have to satisfy equation MPL / MPK = w/r where w and r denote prices of labor and capital. Notice that w/r = (1.05 w)/ (1.05 r). The cost-minimizing quantities of inputs, for each level of output, do not change when prices of both inputs go up by 5% and quantity of land is fixed.
b) For a given output level, the cost-minimizing farmer uses more capital and less labor.
7.9. Suppose the production of airframes is characterized by a Cobb–Douglas production function: Q = LK. The marginal products for this production function are MPL = K and MPK = L. Suppose the price of labor is $10 per unit and the price of capital is $1...

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