State government borrowing

What is the difference between a state government borrowing to fund the construction of, say, a new school building adn borrowing to balance the current budget? Describe the limits financial markets impose on state government borrowing. How are they different from the limits these same markets impose in Federal government borrowing?

Public Finance

Two investors are evaluating IBM's stock for possible purchase. They agree on the expected value of D ¹, and on the expected future dividend growth rate. They also agree on the riskiness of the stock. One investor normally hold stocks for two years, and the other normally holds stock for over 10 years. On the basis of the type of analysis presented in this chapter, they should both be willing to pay the same price for IBM's stock. True of False? Explain.

Compound interest rate

At a compound interest rate of 10% per year, $10,000 one year ago is equivalent to how much 1 year from now?

Income distribution

Suppose John and Kate must split a fixed income of $100. Marginal Utility for John: MUj=400-2Ij Marginal Utility for Kate: MUk=400-6Ik Note: Ij and Ik are the amounts of income to John and Kate respectively. a. What is the optimal distribution of income if social welfare function is additive. What if the reverse is true. Comment on your answer. b. What is the optimal distribution if society values only utility of Kate. c. How will your answers change if MUc=400 and MUk=400.

FED and monetary policy: In principle, could the Federal Reserve conduct monetary policy through the purchase and sale of stocks on the New York Stock Exchange? Suppose the Federal Reserve purchased gold or foreign currency. How would this purchase affect the domestic money supply?

As a member of the Federal Reserve you are speaking with a group of newly elected members of Congress to explain your operations. The members of Congress have asked you to address the following issues. The Federal Reserve has traditionally conducted open market operations through the purchase and sale of government bonds. In principle, could the Federal Reserve conduct monetary policy through the purchase and sale of stocks on the New York Stock Exchange? Do you see any possible drawbacks to such a policy? Suppose the Federal Reserve purchased gold or foreign currency. How would this purchase affect the domestic money supply? [Hint: Think about open market purchases of government bonds... click for more