A. True. You never know what the smallest detail may have.
Answer:
2. (i) demand-side; (ii) both; (iii) supply-side; (iv) supply-side; (v) both
Explanation:
a. $1,000 per person tax reduction ⇒ focus on aggregate demand (more money for consumers to spend)
b. a 5% reduction in all tax rates ⇒ focus on both aggregate demand and supply (more money for consumers and suppliers)
c. Pell Grants, which are government subsidies for college education ⇒ focus on aggregate supply (more money for suppliers of college education)
d. government-sponsored prizes for new scientific discoveries ⇒ focus on aggregate supply (more money for suppliers of new scientific discoveries)
e. an increase in unemployment compensation ⇒ focus on both aggregate demand and supply (more money for consumers resulting in higher prices and lower output)
Answer: C) Stock prices would only change on unexpected news
Explanation:
If the stock market was perfectly efficient, it would mean that all known information is already reflected in the stock price. This includes both historical and current data.
For the stock price to change therefore, there would have to be unexpected news that are not already accounted for in the price and so will force it to react positively or negatively.
Answer:
The total dollar return on this investment is $1765
Explanation:
The total dollar return on the investment by Sue is a sum of the interest earned by Sue during this period and the profit due to the increase in bid/ask price of the bond.
Interest earned = [(0.035/2) x $100,000] = $1750;
The selling price by Sue today will be the bid quote today and for the purchase price on which Sue bought the bond we will take the asked quote on purchase.
bid quote today = 124.2175
asked quote on purchase = 124.2025
Profit earned on selling = (Bid quote today - Asked quote on purchase) * $100,000
= [(124.2175 - 124.2025) x $100,000] = $15
Total return = $1750 + $15 = $1765
