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Answer
The answer and procedures of the exercise are attached in the following archives.
Explanation
You will find the procedures, formulas or necessary explanations in the archive attached below. If you have any question ask and I will aclare your doubts kindly.
Answer and Explanation:
As per the data given in the question,
The central bank have various tools to apply expansionary policy and these tools are :
- Reserve ratio.
- Discount rate.
- Open market operations.
The open market operations include the buying and selling of government owned securities by central bank to impact the monetary base in the economy. In case of any recession, the central bank should purchase government securities to enhance the money supply. Because whenever they do any kind of open market purchase there would definitely be increase in money in the economy. That's why increment in money supply decrease the interest rate in economy.
Nominal interest rate is the cost of borrowing so if there is decrement in interest rate, there would be consumption and investment activities. these both are the component of aggregate demand so the aggregate demand will increase, and this increment in aggregate demand helps the economy to recover in the situation of recession.
Answer:
The expected cost 8 years from now = $13.87
Explanation:
If the inflation rate averages 3 percent yearly over the next 8 years, the expected cost of services for any year in that time frame is given by
C (x) = K (1.03)ˣ
where
K = present cost = $10.95
x = time in years = 8
So, the expected cost of a haircut 8 years from now would be
C(x=8) = 10.95 (1.03)⁸ = $13.87
Hope this Helps!!!!
