Assignment 1(a) Explain (and provide a diagram that illustrates) how you would expect the recent statement by the U.K. Chancellor that the U.K. is currently in recession will impact the demand and supply for loanable funds. What is the reasoning underpinning the Fisher effect's implied positive relationship between expected inflation and nominal interest rate? [35 marks] (b) Given the current U.K. economic environment, with galloping inflation, suppose investors desire an 8 per cent real rate of interest and expect inflation to be 12 per cent over the investment period. Determine the desired real rate of interest. [2 marks] (c) Suppose that investors desire a 10 per cent real rate and expect inflation to gallop to 14 per cent. What is the nominal rate of interest? [2 marks] (d) Assume that as a result of a rapid fall in gas and oil prices, realised inflation is now 8 per cent rather than 14 per cent. Calculate the real rate of interest. [2 marks] (e) Suppose inflation is persistent and, as such, turns out to be higher than expected, at 26 per cent rather than 8 per cent. Determine the realized rate and comment on your calculations in parts (d) and (e). [9 marks] 2(a) Briefly describe a production function and explain what is the most important economic factors influencing the choice of the best combination of inputs by a firm. [30 marks] (b) The Rizzo water company owns land close to its water-purifying plant. The owner of an online business, Ng.com, has offered the management of Rizzo water 3,000,000 per annum to lease the land in order to construct a new order processing and distribution facility. Rizzo water could also use the land to install 100 Wind Turbines to generate electricity. The cost of wind turbines and the hiring of engineers to manage and service the generators would be 5,500,000 per annum. Rizzo water would expect to receive f15,000,000 per annum should it sell the electricity generated directly to the national grid. (i) What are the explicit and implicit costs to the Rizzo water company of producing electricity? [10 marks] (ii) Will Transitional water choose to generate electricity or rent the land for warehousing? Explain in detail. [10 marks]