Harvard Business School Economics Questions

Q.1. Critical Thinking: Financial System: Saving and Investment: Chapter 13: (4 Points)

Suppose the government borrows $20 billion more next year than this year.

a. Use a supply-and-demand diagram to analyze this policy. Does the interest rate rise or fall?

b. What happens to investment, private saving, public saving, and national saving? Compare the size of the changes to the $20 billion of extra government borrowing.

c. How does the elasticity of supply of loanable funds affect the size of these changes?

d. How does the elasticity of demand for loanable funds affect the size of these changes?

e. Suppose households believe that greater government borrowing today implies higher taxes to pay off the government debt in the future. What does this belief do to private saving and the supply of loanable funds today? Does it increase or decrease the affects you discussed in parts (a) and (b)?

Important Note: – Support your submission with course material concepts, principles, and theories from the textbook and at least two scholarly, peer-reviewed journal articles.

Q.2. Critical Thinking: Financial System: The Basic Tools of Finance: Chapter 14: (3 Points)

When company executives buy and sell stock based on private information they obtain as part of their jobs, they are engaged in insider trading. 

a. Give an example of inside information that might be useful for buying or selling stock. 

b. Those who trade stocks based on inside information usually earn very high rates of return. Does this fact violate the efficient markets hypothesis? 

c. Insider trading is illegal. Why do you suppose that is?