CHNS 4190 Lecture 5: Political Economy China Lecture 5 Notes
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1. Which of the following is likely to happen if the Fed buys Treasury securities from banks?
interest rate rises; investment falls |
interest rate rises; investment rises |
interest rate falls; investment rises |
interest rate falls; investment falls |
2. The main goal of monetary policy is to shift
AD. |
SRAS. |
LRAS. |
both AD and SRAS. |
both AD and LRAS. |
3. Which of the following is true regarding the effects of an expansionary monetary policy?
Printing more money will affect real GDP only in the short run because all prices do not adjust fully in the short run. |
Printing more money will affect real GDP both in the short and long run because inflation is a natural occurrence of expansionary monetary policy. |
Printing more money will not lower the value of money in the short run because prices are fully flexible in the short run. |
Printing more money will ultimately raise the value of money in the long run because prices are fully flexible in the long run. |
4. In which of the following cases are you likely to be adversely affected by unexpected inflation?
You, the owner of a local restaurant, charge the price of lamb lasagna as per the daily market rate of lamb. |
You purchase Mountain Dew every day from the dormitory vending machine, which keeps its prices fixed for the entire school year. |
You, the owner of an airline company, sign a two-year contract for airline fuel. |
You deposit $10,000 in a bank account for 5 years for a fixed interest rate of 1%. |
5. The Phillips curve depicts the relation between
real GDP and price level. |
price level and inflation rate. |
unemployment rate and inflation rate. |
unemployment rate and real GDP. |
6. Which of the following statements is true regarding the shapes of short-run and long-run Phillips curves?
The short-run Phillips curve is vertical and the long-run Phillips curve is downward sloping. |
The short-run Phillips curve is downward sloping and the long-run Phillips curve is vertical. |
Both the short-run and long-run Phillips curves are downward sloping. |
Both the short-run and long-run Phillips curves are vertical. |
7. Suppose the table below lists the actual annual inflation rates for 2010 to 2015. What would be the most likely predictions people make about the inflation rate for 2016 based on adaptive and rational expectations theories, respectively?
Year | Actual Inflation rate |
2010 | 0% |
2011 | 0% |
2012 | 3% |
2013 | 3% |
2014 | 6% |
2015 | 6% |
6% and 3% |
6% and 9% |
6% and 12% |
9% and 6% |
3% and 6% |
8. Which of the following can change relatively quickly in the short-run?
the price of a latte in a coffee shop |
the salary of a finance professor |
the rent paid for a store |
For this scenario, the manager at Shooters needs to know how advertising will effect customer turn out. In other words, how much should he spend each week in order to get the biggest return on his money. To that end, the manager at Shooters also recorded data relating how much he spent on weekly advertisements, such as fliers and commercials, with how many customers he had each week.
Week | Ad $, a | People, q | Week | Ad $, a | People, q | Week | Ad $, a | People, q |
1 | $ 50 | 112 | 19 | $ - | 81 | 37 | $ 200 | 195 |
2 | $ 150 | 182 | 20 | $ 300 | 190 | 38 | $ 300 | 205 |
3 | $ 200 | 188 | 21 | $ 150 | 176 | 39 | $ 250 | 193 |
4 | $ 200 | 184 | 22 | $ 50 | 127 | 40 | $ 100 | 147 |
5 | $ 150 | 167 | 23 | $ 200 | 187 | 41 | $ 50 | 123 |
6 | $ - | 77 | 24 | $ 200 | 189 | 42 | $ 250 | 191 |
7 | $ 150 | 173 | 25 | $ 300 | 203 | 43 | $ 50 | 120 |
8 | $ - | 71 | 26 | $ 150 | 168 | 44 | $ - | 89 |
9 | $ 100 | 149 | 27 | $ 100 | 153 | 45 | $ 300 | 198 |
10 | $ 200 | 193 | 28 | $ 200 | 194 | 46 | $ 200 | 189 |
11 | $ 250 | 191 | 29 | $ 200 | 182 | 47 | $ - | 82 |
12 | $ 100 | 146 | 30 | $ 250 | 200 | 48 | $ - | 87 |
13 | $ 100 | 155 | 31 | $ 50 | 125 | 49 | $ - | 76 |
14 | $ 150 | 177 | 32 | $ 300 | 189 | 50 | $ 100 | 159 |
15 | $ 50 | 124 | 33 | $ 150 | 173 | 51 | $ 50 | 121 |
16 | $ 150 | 177 | 34 | $ 300 | 205 | 52 | $ 50 | 120 |
17 | $ 100 | 148 | 35 | $ 200 | 182 | |||
18 | $ - | 76 | 36 | $ - | 80 |
|
) Use this data to determine a model that describes the number of people q who come to Shooters as a quadratic function of the amount of money spent on ads.
Give a graph of the customer versus advertising data. Then state the formula that expresses how many customers he can expect based on advertising expenses, q(a).
2) Use the derivative of the quadratic function you found in question 1 to determine what amount should be spent on advertising each week in order for Shooters to achieve a maximum number of customers? How many customers would come if the owner spent the maximum on advertising?
EXHIBIT 9 | ||||||||||||||
Sensitivity Analysis of Project IRR's by Price, Volume, Development Costs and Cost of Goods Sold | ||||||||||||||
Unit Volume | ||||||||||||||
(First 20 Years) | Price Premium | |||||||||||||
15.66% | 0% | 5% | 10% | 15% | ||||||||||
1500 | 10.5% | 10.9% | 11.3% | 11.7% | ||||||||||
1750 | 11.9% | 12.3% | 12.7% | 13.1% | ||||||||||
2000 | 13.0% | 13.5% | 13.9% | 14.4% | ||||||||||
2250 | 14.1% | 14.6% | 15.1% | 15.5% | ||||||||||
2500 | 15.2% | 15.7% | 16.1% | 16.6% | ||||||||||
2750 | 16.1% | 16.6% | 17.1% | 17.6% | ||||||||||
3000 | 17.1% | 17.6% | 18.1% | 18.6% | ||||||||||
Development | ||||||||||||||
Costs | COGS / Sales | |||||||||||||
15.66% | 78% | 80% | 82% | 84% | ||||||||||
$6,000,000,000 | 21.3% | 18.7% | 15.9% | 12.6% | ||||||||||
$7,000,000,000 | 19.4% | 17.0% | 14.4% | 11.3% | ||||||||||
$8,000,000,000 | 17.9% | 15.7% | 13.2% | 10.3% | ||||||||||
$9,000,000,000 | 16.6% | 14.5% | 12.1% | 9.4% | ||||||||||
$10,000,000,000 | 15.5% | 13.5% | 11.2% | 8.6% | ||||||||||
Note: The section below gives key assumptions driving the model--varying these assumptions, given in yellow, allows one to test the sensitivity of IRR. | ||||||||||||||
Average % deliveries of total to date of 757 and 767 For First 20 Years | ||||||||||||||
Year | % Deliveries | Year | %7E7 | %7E7 Stretch | ||||||||||
1 | 1.19% | 2008 | 100% | 0% | ||||||||||
2 | 4.32% | 2009 | 100% | 0% | ||||||||||
3 | 2.54% | 2010 | 80% | 20% | ||||||||||
4 | 3.30% | 2011 | 50% | 50% | Year 4-30 (Need to modify Exhibit 8 spreadsheet construction if the 50% is changed) | |||||||||
5 | 3.35% | 2012 | ||||||||||||
6 | 4.16% | 2013 | ||||||||||||
7 | 5.46% | 2014 | ||||||||||||
8 | 4.76% | 2015 | ||||||||||||
9 | 7.41% | 2016 | ||||||||||||
10 | 7.68% | 2017 | ||||||||||||
11 | 8.76% | 2018 | ||||||||||||
12 | 6.59% | 2019 | ||||||||||||
13 | 5.95% | 2020 | ||||||||||||
14 | 4.32% | 2021 | ||||||||||||
15 | 4.59% | 2022 | ||||||||||||
16 | 4.76% | 2023 | ||||||||||||
17 | 5.46% | 2024 | ||||||||||||
18 | 6.00% | 2025 | ||||||||||||
19 | 4.81% | 2026 | ||||||||||||
20 | 4.59% | 2027 | ||||||||||||
21-30 | 4.59% | |||||||||||||
Deliveries in years 1-20 | 2500 | |||||||||||||
Deliveries in years 21-30 | Same as year 20 | |||||||||||||
Development costs | $8,000,000,000 | |||||||||||||
Composition of development costs: | ||||||||||||||
Capital Expenditures | 25% | |||||||||||||
R&D | 75% | |||||||||||||
Timing of development costs | 2004 | 2005 | 2006 | 2007 | 2008 | 2009 | ||||||||
5% | 15% | 50% | 15% | 10% | 5% | |||||||||
Minimum Price of 7E7 in 2002 U.S. $ | 120500000 | |||||||||||||
Minimum Price of 7E7 stretch in 2002 U.S. $ | 144500000 | |||||||||||||
Cheaper operating cost and other features price premium | 5% | |||||||||||||
Service Revenues | ||||||||||||||
Cost of goods sold | 80% | |||||||||||||
GSA percentage | 7.5% | |||||||||||||
R&D | 2.3% | |||||||||||||
Tax Expense | 35% | |||||||||||||
Capital Expenditures | 0.16% | |||||||||||||
Working capital % of sales | 6.7% | |||||||||||||
Inflation | 2% | |||||||||||||
Depreciation | 150% declining balance 20 year, 0 salvage value. Calculations at bottom of exhibit 7 | |||||||||||||
What does sensitivity analysis reveal about the nature of Boeing's gamble on the 7E7??