1. Assume the production function Y = KL (1-a) where = .33 and K = 1,...

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1. Assume the production function Y = KL (1-a) where = .33 and K = 1, a. Calculate the marginal product of labor of the first and second worker. b. Assume P=20 and W=10. Should the firm hire the second worker? Why or why not? c. What is the economic meaning of the parameter a? 2. Assume the production function Y = KL (1-a). Assume that the long-run supply curves for labor and capital are vertical. a. Draw a graph showing the effect of an exogenous decreases in the supply of capital on the rental price of capital. Label all axes and curves. b. Draw a graph showing the effect of an exogenous decrease in the supply of capital on the real wage. Label all axes and curves. 3. Use the following balance sheets to answer questions 3. Bank A Balance Sheet Assets Reserves 1,000 Loans 8,000 Securities 1,000 Liabilities. Deposits 9,500 Capital 500 Bank B Balance Sheet Assets Reserves 1,000 Loans 8,000 Securities 1,000 Liabilities. Deposits 9,000 Capital 1,000 a. Which bank is riskier? Why? b. Suppose the Federal Reserve purchases $500 of securities from Bank A. What other item on the balance sheet would change, and by how much? c. Suppose some borrowers default on their loans to Bank B and the value of Bank B's loans fall to $7,500. What other item on the balance sheet would change and by how much? d. Which of the accounting items on the bank's balance sheet includes the bank's vault cash? 4. Watch the video "How Silicon Valley Bank Collapsed in 36 Hours" by WSJ What Happened on Youtube. a. Explain how SVB's balance sheet changed during the pandemic. What was the main change on its liability side? What was the main change on its asset side? b. U.S. government bonds are often thought of as the safest asset. Why then did SVB lose money on its investments in U.S. government bonds? c. Why were deposit outflows mostly concentrated among large depositors? d. How did recent changes in bank regulation make the collapse of SVB more likely? 5. Use the following information to answer question 5. CPI Year 2020 258.8 2021 271.0 2022 292.6 Quarter 2022 II 291.5 2022 III 295.5 2022 IV 298.5 a. What was the inflation rate in 2022? b. What was the inflation rate in the third quarter of 2022? 5a. Use the information below to calculate a "canine" CPI for both 2012 and 2023, assuming that 2012 is the base year. b. Provide one argument for why the canine CPI might overstate the inflation rate. Be specific. Price Price Quantity 2012 2023 Canned dog food 100 $2 $5 Dry dog food 500 $1 $1 Vet visit 2 $60 $100 Chew toys 5 $10 $15 1. Assume the production function Y = KL (1-a) where = .33 and K = 1, a. Calculate the marginal product of labor of the first and second worker. b. Assume P=20 and W=10. Should the firm hire the second worker? Why or why not? c. What is the economic meaning of the parameter a? 2. Assume the production function Y = KL (1-a). Assume that the long-run supply curves for labor and capital are vertical. a. Draw a graph showing the effect of an exogenous decreases in the supply of capital on the rental price of capital. Label all axes and curves. b. Draw a graph showing the effect of an exogenous decrease in the supply of capital on the real wage. Label all axes and curves. 3. Use the following balance sheets to answer questions 3. Bank A Balance Sheet Assets Reserves 1,000 Loans 8,000 Securities 1,000 Liabilities. Deposits 9,500 Capital 500 Bank B Balance Sheet Assets Reserves 1,000 Loans 8,000 Securities 1,000 Liabilities. Deposits 9,000 Capital 1,000 a. Which bank is riskier? Why? b. Suppose the Federal Reserve purchases $500 of securities from Bank A. What other item on the balance sheet would change, and by how much? c. Suppose some borrowers default on their loans to Bank B and the value of Bank B's loans fall to $7,500. What other item on the balance sheet would change and by how much? d. Which of the accounting items on the bank's balance sheet includes the bank's vault cash? 4. Watch the video "How Silicon Valley Bank Collapsed in 36 Hours" by WSJ What Happened on Youtube. a. Explain how SVB's balance sheet changed during the pandemic. What was the main change on its liability side? What was the main change on its asset side? b. U.S. government bonds are often thought of as the safest asset. Why then did SVB lose money on its investments in U.S. government bonds? c. Why were deposit outflows mostly concentrated among large depositors? d. How did recent changes in bank regulation make the collapse of SVB more likely? 5. Use the following information to answer question 5. CPI Year 2020 258.8 2021 271.0 2022 292.6 Quarter 2022 II 291.5 2022 III 295.5 2022 IV 298.5 a. What was the inflation rate in 2022? b. What was the inflation rate in the third quarter of 2022? 5a. Use the information below to calculate a "canine" CPI for both 2012 and 2023, assuming that 2012 is the base year. b. Provide one argument for why the canine CPI might overstate the inflation rate. Be specific. Price Price Quantity 2012 2023 Canned dog food 100 $2 $5 Dry dog food 500 $1 $1 Vet visit 2 $60 $100 Chew toys 5 $10 $15