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Your niece just started her college career with a major in economics. She is curious as to the interrelationship between the success of an economy and the financial markets, concepts, and financial institutions. Accordingly, she has developed a list of questions addressing these issues and has asked that you explain the ideas.

1-What are the financial markets and what purposes do they serve?

2-What are financial intermediaries? How do these intermediaries function in the economy?

3-What is a federal government budget deficit? What is the national debt? How does a budget deficit affect the economy?

She is also curious about the time value of money concepts. Specifically, she has the following questions about these concepts:

4-Why are consumers considered to be risk averse? What methods could used to deal with risk?

5-It has been said that a dollar received today is worth more than a dollar received tomorrow. What does this mean and what is the significance to the economy?

6-What is the difference between the present value of a future sum of money and the future value of a present sum of money? What is the significance of these concepts to economics?

7-If you deposited $1,000 in an account paying 6% interest compounded annually, how long would it take to double?

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Retselisitsoe Pokothoane
Retselisitsoe PokothoaneLv10
28 Sep 2019

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Related questions

Your niece just started her college career with a major in economics. She is curious as to the interrelationship between the success of an economy and the financial markets, concepts, and financial institutions. Accordingly, she has developed a list of questions addressing these issues and has asked that you explain the ideas.

What are the financial markets and what purposes do they serve?

What are financial intermediaries? How do these intermediaries function in the economy?

What is a federal government budget deficit? What is the national debt? How does a budget deficit affect the economy?

She is also curious about the time value of money concepts. Specifically, she has the following questions about these concepts:

Why are consumers considered to be risk averse? What methods could used to deal with risk?

It has been said that a dollar received today is worth more than a dollar received tomorrow. What does this mean and what is the significance to the economy?

What is the difference between the present value of a future sum of money and the future value of a present sum of money? What is the significance of these concepts to economics?

If you deposited $1,000 in an account paying 6% interest compounded annually, how long would it take to double?

Please read the passage and answer the questions below.

During the first half of the 2000s, the Japanese yen was relatively weak against the U.S. dollar. This was a boon for Japan’s export-led economy. On January 1, 2008, it took 122 yen to buy one U.S. dollar. For the next four years, the yen strengthened relentlessly against the dollar, hitting a record high of ¥75.31 to the dollar on October 31, 2011. The reasons for the rise of the yen were complex and had little to do with the strength of the Japanese economy because there has been very little of that in evidence. The weakness of the yen during the early to mid-2000s was due to the so-called carry trade. This financial strategy involved borrowing in Japanese yen, where interest rates were close to zero, and investing the loans in higher-yielding assets, typically U.S. Treasury bills, which carried interest rates 3 to 4 percentage points greater. Investors made profits from the interest rate differential. At its peak, financial institutions had more than a trillion dollars invested in the carry trade. Because the strategy involved selling borrowed yen to purchase dollar-denominated assets, it drove the value of the yen lower. The interest rate differential existed because the Japanese economy was weak, prices were falling, and the Bank of Japan had been lowering interest rates in an attempt to boost growth and get Japan out of a dangerous deflationary cycle. When the global financial crisis hit in 2008 and 2009, the Federal Reserve in the United States responded by injecting liquidity into battered financial markets, effectively lowering U.S. interest rates on U.S. Treasury bonds. As these fell, the interest rate differential between Japanese and U.S. assets narrowed sharply, and the carry trade became unprofitable. Financial institutions unwound their positions, selling dollar-denominated assets, and buying yen to pay back their original loans. The increased demand drove up the value of the yen. For Japanese exporters, the 40 percent increase in the value of the yen against the dollar (and the euro) between early 2008 and 2012 was a painful experience. A strong yen hurts the price competitiveness of Japanese exports and reduces the value of profits earned overseas when translated back into yen. Take Toyota as an example: In February 2012, the company stated that its profit for the year ending March 31, 2012, would be about ¥200 billion, 51 percent lower than in the prior year. Toyota makes nearly half of the cars it sells globally at its Japanese plants, so it has been particularly hard hit by a rise in the value of the yen. In late 2012, things started to change when the pro-business Liberal Democratic Party won national elections and Shinzo Abe was appointed prime minister. Abe had campaigned on a platform that included taking actions to weaken the value of the yen to help Japan’s exporters. Even before the election, Japan’s central bank had accelerated purchases of government securities, thereby expanding the money supply, and had agreed to a higher inflation target. Under Abe’s leadership, this policy had explicit government support. One consequence of the policy was to reduce the value of the yen against other currencies. Indeed, between October 2012 and December 2013, the yen lost more than 25 percent of its value against the U.S. dollar. The yen was trading at ¥104 to the U.S. dollar in late December 2013. While this helped Japan’s exporters, the policy was criticized by other major industrial nations as a unilateral action that came dangerously close to precipitating a currency war.

1. Who in Japan benefits from the devaluation of the yen? Who does this hurt in Japan?

2. What does this case teach you about the way foreign exchange markets work?

Can I get answers about these questions??

These questions are about Chapter 16-22 in Principles of Microecnomics sixth editon.


Monopolistic competition

· What makes a market monopolistically competitive?

· How do monopolistically competitive firms decide how much to produce and what price to set?

· How to monopolistically competitive firms make short-run and long-run choices?

· What is the role of advertising?

Oligopoly and Game Theory

· What is the prisoner’s dilemma and what are some applications?

· What is collusion and why is it difficult? What are some things that can make it harder or easier to collude?

· What is a dominant strategy?

· How can you find a Nash equilibrium in a game where a player has a dominant strategy?

Markets for Factors of Production

· How do profit maximizing firms decide how much of a factor of production (such as labor) to use? In other words what is the demand for factors of production?

· What changes the demand for factors of production?

· What determines the supply for labor? Supply for other factors of production?

· How are the rental prices and wages determined in a competitive market for factors of production?

Earnings and Discrimination

· What are some reasons why different people have different labor earnings?

· What are some difficulties in measuring discrimination?

· Why might firms that discriminate have difficulty competing?

· Why might a firm find it profitable to discriminate?

Income Inequality and Poverty

· What are some political philosophies regarding what the government should do to decrease poverty or income inequality?

· What are some policies that can reduce poverty? What are the strengths and weaknesses of these policies?

Consumer Choice

· What is the consumers budget constraint?

· How does a consumer choose how much of different goods to consume?

· What are the income and substitution effects?

· How does the demand curve relate to the consumer choice problem?

· How does the consumer choice problem relate to labor supply and borrowing/lending behavior?

Asymmetric Information and Healthcare

· What is moral hazard?

· What is adverse selection?

· How do these two concepts relate to the market for insurance and healthcare?

· How do insurance companies try to deal with adverse selection and moral hazard?

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