Market Efficiency Journal In the journal, be sure to address the following: Summarize the efficient market hypothesis.Summarize the two positions of market efficiency (semistrong form and strong form).State which position you believe.Justify your position. Explain what your belief implies about how you should manage your own investments.

Conceptual Questions Answer the following questions in a few sentences: 1. Read the article “Rethinking GDP” by Diane Coyle. Give three reasons why GDP is not a perfect measure of well-being and explain why their omission is important. 2. Read the article “We’ve become addicted to the income stagnation story. It’s probably not true.” Explain how the article shows an example of the impact of making different choices in adjusting variables for inflation. 3. Read the article “Say’s Law: Supply creates its own demand.” What is Say’s Law? Explain why Say’s Law won’t always work in a monetary economy.Analytical Questions 1. In each of the following scenarios, calculate the total increase in US GDP this year caused directly by the given information a. An individual purchases an old used car from their friend for $6,000. They buy a new engine for the car for $1,000, replace the brakes for $500, and paint it for $200. They then sell the car for $10,000. Assume all improvements were completed this year. b. A computer manufacturer in the US buys parts for its computer from Japan. The cost of these parts is $500. It produces and sells a computer for $700 using these parts. c. A child is running a lemonade stand. They purchase 20 lemons for $3 each and 500 grams of sugar for $0.01 per gram. Using these ingredients, they make and sell 50 cups of lemonade for $2 each and at the end of the day they have 5 lemons and 100 grams of sugar remaining (that they do not sell and eventually consume themselves). d. A video game company prints 2 million copies of a game that sells for $60. It sells 1.8 million of these this year and the remainder the following year. e. A sandwich shop buys $1000 of ham, $500 of cheese, and $300 of bread. It also buys a new meat slicer for $300. Using these, it produces and sells $2000 of sandwiches. There is no ham or cheese remaining after production, but the meat slicer is still in perfect condition. 2. There are 800 consumers in an economy that each have the same utility function given by U(c, l) = 32c 1/2−(24−l) 2 where c is their consumption and l is the number of hours they spend for leisure. A single firm serves the market with production function Y = 32L 1/2K1/2 . The firm cannot choose its capital stock, which is fixed at K = 1600. You can assume the price level is equal to 1 so real and nominal wages are equivalent. a. Solve for an individual consumer’s labor supply as a function of the real wageb. What is the total supply of labor hours for the economy in one day as a function of the real wage? c. Solve for the firm’s labor demand as a function of the real wage d. What is the equilibrium real wage and equilibrium total number of hours worked per day? How many hours does each consumer work per day? e. What is total output for the economy? What is consumption? (challenge: why isn’t the consumption you calculated equal to output?) f. The government wants to increase the equilibrium real wage, so it mandates a minimum wage of $15 per hour. What happens to labor supply and demand? How many total hours will be worked? What is total output? g. Now the government gets rid of the minimum wage and tries a wage subsidy instead. For every hour worked, they pay the consumer some benefit b. How large does b have to be in order to reach $15/hr of total compensation (w + b)? (don’t forget that the equilibrium wage will change with the subsidy) Now how many hours will be worked and what is total output? h. Bernie Sanders is worried that the wage subsidy is actually subsidizing the firm. The government passes a 100% tax paid by the firm for every dollar of benefit the firm’s employees receive from the government (in other words, for every hour of labor the firm hires the worker, it needs to pay the wage plus the benefit its workers receive). Solve for total compensation received by the worker (you will not be able to solve for the wage and benefit separately, solve for w + b). Does Sanders’s proposal help workers? Explain the intuition. 3. The manufacturing industry has a labor demand curve given by L D M = 1200 − 100w and the service industry has a labor demand curve given by L D S = 400 − 20w. Total labor supply is given by L S = 400 (i.e. labor supply is perfectly inelastic - it doesn’t depend on the wage. Here assume L is in units of workers, so there are 400 total workers) a. Find the equilibrium wage and labor in each industry (remember the sum of labor in each industry has to add up to total labor) b. The manufacturing industry union renegotiates a wage of $11. If workers can freely move between industries, what happens to wages and employment in each industry? (Hint: If workers cannot find a job in manufacturing, they will look for a job in services) c. Service workers complain about low wages, so the government mandates a $11 minimum wage. What happens to employment in each industry? What is the unemployment rate? d. Show what happened on a graph 4. Two consumers (call them A and B) have utility functions over consumption in period 1 and consumption in period 2 given by U(c1, c2) = ln(c1) + ln(c2)In period 1, consumer A receives income of y A 1 = 80 and consumer B receives y B 1 = 120. In period 2, the endowments are reversed, consumer A gets y A 2 = 120 and consumer B gets y B 2 = 80 a. First assume consumers are not allowed to save (so they just consume their income each period). Calculate utility for each consumer. b. Now let consumers save. They receive an interest rate r on their savings. Write out the budget constraint for each consumer in each period and the combined two-period budget constraint (as in the notes) c. Find the optimal consumption for each consumer in each period as a function of the interest rate d. If r=0.2, calculate how much each consumer wants to save (or borrow - if optimal saving is negative) and consumption in each period. Is this allocation feasible? In other words, given the amount of total income in the economy in each period, is it possible to consume as much as this allocation would suggest? e. Find the market clearing interest rate (the interest rate where total consumption adds to total income in each period) f. Now assume consumer B’s income in period 2 increases to y B 2 = 100 (everything else stays the same). Find the new equilibrium interest rate. Is it higher or lower than the interest rate in part e? Explain the economic intuition of this result (hint: think about what has happened to the relative scarcity of total income in each period and how that affects desired saving by each consumer). g. Now assume consumers discount consumption in period 2 relative to period 1 so that their utility function becomes U(c1, c2) = ln(c1) + β ln(c2) Where β is a discount factor between 0 and 1. Keeping the values from question f, what is the equilibrium interest rate if β = 0.9? Explain the economic intuition.

Choose 1 of the following topics related to the Great Recession:The housing price bubble, collapse, foreclosures, bailout of underwater mortgagesSubprime mortgages and derivatives, bailout of FNMA, Freddie Mac and AIGThe banking industry crisis, bailout of commercial and investment banksWrite a 350- to 700-word analysis of 1 of the following corrective actions taken by the Federal Reserve as a result of the crisis:Quantitative easingPurchase of toxic assets from financial institutionsPaying interest on reserve balancesAddress the following in your analysis:Actions taken by the Federal Reserve to mitigate the crisisHow the corrective action helped to restore stability to the financial systemHow the corrective action should prevent recurrence of a similar crisisNote: Use of charts and graphs is encouraged with appropriate citations. Any charts or graphs retrieved from the Federal Reserve Bank of St. Louis FRED website may only be included when the data sources used by FRED are US government sources such as the Bureau of Economic Analysis or the Bureau of Labor Statistics. Cite at least 2 academically credible sources. Format your assignment according to APA guidelines. Submit your assignment.