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Question: which of the following will tend to increase the quantity...

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Which of the following will tend to increase the quantity of labor hired:

a. a rise in demand for labor;

b. a fall in the demand for labor;

c. a rise in the supply of labor;

d. a fall in the supply of labor? Sketch a demand and supply diagram to illustrate your answer.

  1. The demand and supply of financial capital for business investment is shown in the following table. “Price” in this market is measured as the rate of return that is paid by recipients of financial capital and received by investors of financial capital; the quantity of capital is measured in billions of dollars. What is the equilibrium? How can you tell? Now suppose that because of a series of important new technological inventions, U.S. businesses perceive a larger number of good investment opportunities, so that their demand for financial capital rises by $16 billion at each interest rate. What is the new equilibrium? Sketch the original demand and supply situation and the new situation on a graph. Do the equilibrium price and quantity change in the direction you would expect given an increase in demand?

Rate of return

Original quantity demanded

Original quantity supplied

8%

80

50

9%

70

55

10%

60

60

11%

55

63

12%

50

66

13%

48

68

14%

46

70

  1. Predict how each of these events will affect U.S. interest rates and the equilibrium quantity of loaned funds. In each case, draw a supply and demand diagram to illustrate your answer.
    1. Americans become more optimistic that the economy will be strong, jobs will be secure and wages will rise in the near future, so they start borrowing to buy homes and cars.
    2. Businesses look at the new technologies and believe that there are many new profitable new investment opportunities.
    3. More companies issue credit cards to consumers, making it easier to borrow money.
    4. The government stops having a budget deficit and borrowing money, and instead starts having budget surpluses and paying off its debt.
    1. Foreign investors lose confidence in the U.S. economy and believe that there are better opportunities in Europe and Asia.
    2. Saving becomes chic.
  1. A U.S. state decides to help its low income individuals by imposing a minimum wage law. The following table shows the wage and quantity supplied and demanded in the market for low-skilled labor. What is the quantity supplied and quantity of workers demanded if the new minimum wage is set at $5.50 per hour? $6.00 per hour? $7.50 per hour?

Wage

Quantity of

Quantity of labor

per hour

labor demanded

supplied

$5.00

3,500

2,400

$5.50

3,000

3,000

$6.00

2,600

3,500

$6.50

2,300

3,800

$7.00

2,000

4,000

$7.50

1,800

4,200

$8.00

1,600

4,400

  1. Select the correct answer. A price ceiling will usually shift:
    1. demand;
    2. supply;
    3. both;
    4. neither.
            Illustrate your answer with a diagram.
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