Project #159433 - 2 questions

Business Tutors

Subject Business
Due By (Pacific Time) 12/07/2016 12:00 am

1. Use AD and AS curves to explain the effects on the equilibrium price level and equilibrium level of output in the short run.


(a) An contractionary fiscal policy with the economy operating near full capacity.


(b) A expansionary monetary policy during a period of high unemployment and excess industrial capacity.


(c) A strong hurricane destroys energy plants which cause energy prices to increase, assuming that the Fed attempts to keep interest rates constant by accommodating inflation.


(d) The federal government pursues a contractionary fiscal policy while the Fed acts to keep output from falling.




2.American Airlines (AA) and Delta are engaging into the following one-shot game: if AA advertises for a fair to Chicago and Delta does not, AA will make $20 million in profits and Delta will make $6 million. If Delta advertises and AA does not, AA will make $2 million and Delta will make $6 million. If AA advertises and Delta advertises, each firm earns $10 million. If neither firm advertises, Delta will make $8 million and AA will make $4 million.

(a) Write the payoff matrix for the above game.

(b) Does AA have a dominant strategy?

(c) Does Delta have a dominant strategy?


(d) What is the Nash equilibrium for the one-shot game?


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