Under which of the following circumstances might a gallon of water be more valuable than a flawless one carat diamond?
a. At a diamond shop next door to a clean public drinking fountain
b. At a diamond shop next door to a typical grocery store selling bottled water.
c. In any U.S. city with safe, clean drinking water.
d. In a life raft with 8 passengers who have been adrift on a remote part of the Pacific Ocean for a week with few prospects of an immediate rescue.
d
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Yi and Avik are both economists. Yi thinks that taxing consumption, rather than income, would result in higher household saving because income that is saved would not be taxed. Avik does not think that household saving would respond much to a change in the tax laws. In this example, Yi and Avik
a. hold different normative views about the tax system. b. disagree about the validity of a positive theory. c. have a fundamental misunderstanding of the tax system. d. More than one of the above is correct.
Suppose that:1) The interest on a one-year bond today is 3%;2) The interest on a one-year bond starting one year from now is expected to be 4% per year;3) The interest on a one-year bond starting two years from now is expected to be 5% per year;4) The risk premium on a two-year bond is 0.5%; and5) The risk premium on a three-year bond is 1.0%.Use that information to answer the following questions.a)According to the expectations theory, what is the interest rate today on a two-year bond? Show your work.b)According to the expectations theory, what is the interest rate today on a three-year bond? Show your work.c)Plot the yield curve.
What will be an ideal response?