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3 Operations can be classified according to their volume and variety of production as well as the degree of variation and visibility. Which of the following operations would be classified as high volume, low variety? a. A family doctor b. A carpenter c. A front office bank d. A fast food restaurant 4 Which of the following activities is not a direct responsibility of operations management? a. Designing the operation's products, services and processes b. Planning and controlling the operation c. Developing an operations strategy for the operation.

Which of the following statements best describes a production function? a. the maximum profit generated from given levels of inputs b. the maximum level of output generated from given levels of inputs c. all levels of output that can be generated from given levels of inputs d. all levels of inputs that could produce a given level of output 5 With respect to production, the short run is best defined as a time period a. lasting about six months. b. lasting about two years. c. in which all inputs are fixed. d. in which at least one input is fixed. 6 In the long run, all factors of production are a. variable. b. fixed. c. materials. d. rented.

III.1 Consider a small open economy facing an exogenous constant real interest rate Suppose that at time 0 government debt is 0 0 GDP is denoted and grows at the constant rate Assume government spending, satisfies = and that net tax revenue, satisfies = where and are positive constants and = 0 1 2.... a) What is the minimum size of the primary budget surplus as a share of GDP required for satisfying the government's intertemporal budget constraint as seen from time 0 (the beginning of period 0)? Derive your result by two different methods, that is,ebt-income ratio and next the method based on the intertemporal government budget constraint. b) What key condition in the setup is it that ensures that both methods are appropriate and give the same result? III.2 A budget deficit rule. Let time be continuous and suppose that money financing of budget deficits never occurs. Consider a budget deficit rule saying that the nominal budget deficit must never be above 100 per cent of nominal GDP, 0 that is, the requirement is (*) where (given = () is nominal government debt) and = () is a price index, whereas = () is real GDP. a) Is the deficit rule in the SGP of the EMU a special case of this? Why or why not? b) Suppose the deficit rule (*) is always binding for the economy we look at. Derive the implied long-run value, of the debt-income ratio ( ) assuming a non-negative, constant inflation rate (just a symbol for a constant, not necessarily the mathematical constant 3.14159...) and a positive constant growth rate, of GDP. Hint: the differential equation + = where and are constants, 6= 0 has the solution = (0 ) + where = c) Let the time unit be one year, = 002 and = 003 for the SGP of the EMU Calculate the value of Comment. III.3 Short questions a) Briefly describe what a cyclically adjusted budget deficit rule is. b) "When (standard notation), the No-Ponzi-Game condition of the government is both a necessary and sufficient condition for government solvency. III.4 When does the dynasty model imply Ricardian equivalence? Consider a small open economy, SOE, with perfect mobility of goods and financial capital across borders, but no mobility of labour. Domestic and foreign financial claims are perfect substitutes. The real rate of interest at the world financial market is a constant, . Time is discrete. People live for two periods, as young and as old. As young they supply one unit of labour inelastically. As old they do not work. As in the Barro dynasty model we consider singleparent families with a bequest motive. Each parent belonging to generation has 1 + descendants, and constant. There is perfect competition on all markets, no uncertainty, and no technical progress. Notation is = number of young in period = real gross tax revenue in period , = = a lump-sum tax levied on the young in period = real government debt at the start of period In every period each old receives the same pension payment, from the government. From time to time the government runs a budget deficit (surplus) and in such cases the deficit is financed by bond issue (withdrawal). That is, +1 = + 1 where 0, 0, and are given (until further notice, is constant). Thus, the pension payments are, along with interest payments on government debt, the only government expenses. The government always preserves solvency in the sense that sooner or later tax revenue is adjusted to satisfy the intertemporal government budget constraint (more about this below). The representative young individual: An individual belonging to generation chooses saving, and bequest, +1, to each of the descendants so as to maximize = X =0 (1 + ) (1+) + 1 1 + (2++1) (*) s.t. 1 + = + 2+1 + (1 + )+1 = (1 + ) + +1 0 and taking into account the optimal responses of the descendants. Here 1 + (1 + )(1 + ) where 0 (both and constant). Also 1 is constant. The period utility function satisfies the No Fast assumption and 0 0 00 0. Negative bequests are forbidden by law. a) How comes that the preferences of the single parent can be expressed as in (*)? b) Derive the first-order conditions for the decision problem, taking into account that two cases are possible, namely that the constraint +1 0 is binding and that it is not binding. Interpret the first-order conditions. Suppose it so happens that = and that, at least for a while, circumstances are such that the agents are at an interior solution (i.e., +1 0) We define a steady state of this economy as a path along which 1 and 2 do not change over time. c) Is the economy in a steady state? Why or why not? Hint: combine the first-order conditions and use that = The link between the intertemporal budget constraint of the government and that of the dynasty: As seen from the beginning of period the intertemporal government budget constraint is: X =0 +1(1 + ) 1 = X =0 +(1 + ) 1 (i) X =0 + (1 + ) (1 + )+1 = X =0 1 + (1 + ) (1 + )+1 + (ii) X =0 (1 + ) (1 + )+1 + 1 + = (iii) d) Briefly explain in economic terms what each row here expresses. e) The intertemporal budget constraint of the representative dynasty is 1 X =0 (1 + ) (1 + )+1 [2+ + (1 + )1+] = + where is aggregate financial wealth in the economy and is aggregate human wealth (after taxes): = X =0 (1 + ) (1 + )+1 (+ + + 1 + ) Briefly explain in economic terms these two equations. f) Suppose that in period + 1 is increased (a little) to a higher constant level, before the bequest +1 is decided. Is the consumption path (2+ 1+) =1 affected? Why or why not? g) Given suppose that for some periods there is a (small) tax cut so that + +1 + +, that is, a budget deficit is run. Is the consumption path (2+ 1+) =0 affected? Why or why not? Implications of : Now suppose instead that (but still ) and that the economy is, at least initially, in steady state. h) Will the bequest motive be operative? Why or why not? i) Suppose is increased (a little) to a higher level without being immediately adjusted correspondingly. Is resource allocation affected? Why or why not? j) Given suppose a tax cut occurs so that for some periods a budget deficit is run. Is resource allocation affected? Why or why not? k) In a few words relate the results of your analysis to the conclusions from other dynamic general equilibrium models you know of. ) In a few words assess the Barro model of infinitely-lived families linked through bequests.

For each ton of a certain type of rice commodity, the four-year forward price is 300. A four-year 400-strike European call option costs 110. The continuously compounded risk-free interest rate is 6.5%. Calculate the cost of a four-year 400-strike European put option for this rice commodity.

The ask price for a share of ABC company is 100.50 and the bid price is 100. Suppose an investor can borrow at an annual effective rate of 3.05% and lend (i.e., save) at an annual effective rate of 3%. Assume there are no transaction costs and no dividends. Determine which of the following strategies does not create an arbitrh a forward price of 102.50. (B) Short sell one share, and enter into a long one-year forward contract on one share with a forward price of 102.75. (C) Short sell one share, and enter into a long one-year forward contract on one share with a forward price of 103.00. (D) Purchase one share with borrowed money, and enter into a short one-year forward contract on one share with a forward price of 103.60. (E) Purchase one share with borrowed money, and enter into a short one-year forward contract on one share with a forward price of 103.75