Problem Set 4 Essays - Economy, Gross Domestic Product, Unemployment

Problem Set 4 Essays - Economy, Gross Domestic Product, Unemployment Problem Set 4 1. Explain the concept of moral hazard in 3-4 sentences. It is a situation in which one party gets involved in a risky event knowing that it is protected against the risk and the other party will incur the cost. These situations are caused due to information asymmetry ( When both parties have incomplete information about each oth er ), and are ubiquitous. They a re caused due to hidden actions. For example : Taking big bets in a marketplace with your firm's capital because you have limited exposure to the downside but lots of exposure to the upside . 2. Explain the concept of adverse selection in 3-4 sentences. Adverse selection refers to a situation where sellers have information that buyers do not, or vice versa, about some aspect of product quality. In the case of insurance, adverse selection is the tendency of those in dangerous jobs or high-risk lifestyles to get life insurance . To fight adverse selection, insurance companies try to reduce exposure to large claims by limiting coverage or raising premiums. To overcome adverse selection, the following could be done : Signaling - adopting ways to ascertain the quality of the product such as issuing warranti es, third party verification. Screening -make efforts to learn more abou t the product or service . 3. What are the pros and cons of using GDP as a measure of a nation's well-being? Pros: GDP provides a better analysis or measure of economy activity through its growth rate and changes in an economy than any other existing measure. It summarizes a whole range of economic information in and determines the comparative strengths and weaknesses of various sectors. GDP serve as accurate barometer of the business climate, where it provides the government and business useful information to adjust in different kinds of contingency problems like recession and depression. GDP serve as a simple proxy for social and economic welfare. Cons: G DP does not include non-market activities. These activities are based on production and consumption that occur outside the market economy that does not have a price attached like unpaid house workers, volunteer work, barter and the illegal drug trade. It does not include domestic household products or black market. It does not consider how the wealth of a nation is distributed equally. For example , GDP provides an estimate of each person share of the market economy but, in reality some people share of the economy is greater than others. This level of unequal distribution of incomes and consumption and the incidence of poverty cannot be determined by tracking the GDP. Some GDP measured expenditures do not contribute to Economic Welfare. It does not account for any welfare loss or any negative events that results from an event such as a natural disaster environmental cleanup or reconstruction effort contributes to welfare and the GDP. It does not accurately reflect the wellbeing and the living standards of people. The performance of few top companies can skew the GDP figure (It is a mean). E.g. : While India is the 5 th largest economy in terms of GDP, a significant number of people still earn less than $2 a day and lead a difficult life. 4. Please listen to the following Planet Money podcast (titled "How Recalculating GDP Can Help App Designers In Nigeria", broadcast on 5/31/2013): http://wlrn.org/post/how-recalculating-gdp-can-help-app-designers-nigeria and answer the following questions: a. What are the arguments for restating Nigeria's GDP? The current Nigeria's GDP was calculated based on data collected in 1990. T here were significant developments o ver the last 2 decades . Many new industries such as telecommunications have sprung up. T he current GDP model did not capture the contributions from such fast-growing industries . So, they decided to upgrade by rebasing to a new year. This move would greatly help the country to borrow money at a low cost and invest in those sectors that further boost the economy. Further, this would also make Nigeria a target destination for investments. b. What are the arguments against restating Nigeria's GDP? If the GDP of Nigeria is restated, hence updated based on a new base year, Nigeria would become the largest econom y in the

ACT Exam Time Management Handing in the Test Early

SAT / ACT Exam Time Management Handing in the Test Early SAT / ACT Prep Online Guides and Tips I recently received a question from one of my students that I believe highlights a very common mistake: "I find that on some sections I finish early and close the section ahead of time – does this mean I'm doing well on those sections?" Here, I'll break down why this sometimes happens, and what it means for you. Isn't Getting Done First a Great Thing? Many students are used to high school exams where the genius in the class finishes ahead of time and hands in the test early. These students then get the idea that handing in the test early is a sign of genius, and strive for the same on the ACT / SAT. But it turns out that closing a section early is almost always a huge mistake on the ACT / SAT due to time management. Read on to find out why. Why Finishing Early is a Huge Mistake The SAT / ACT are time-pressure tests. This means the creators of the tests on purpose give you much less time than you need to feel no time pressure on the tests. Few, if any, students are smart enough to really finish early. I personally received perfect scores on the SAT and know dozens of classmates who got perfect ACT / SAT scores, some of who are genius mathematicians, and none of these people ever finished early. Time is gold on the test, and you canalwaysconvert time to a higher expected score on these tests (I'll show you how). If you accept this, then it's obvious you shouldn't be handing in the test early: are you getting a perfect score in that section you're handing in early? If not, why aren't you using the techniques below to convert that extra time to a higher score? How to Convert Time To Score Okay, you're handing in your math section early, yet you're far from getting a 800. How do you convert that extra time into a higher score? Strategy #1: Have pacing checkpoints. Finishing early should never take you by surprise. You should be glancing at your watch every 5 minutes, and seeing whether you're "too ahead" or "too behind" in your section. Finishing early means you're "too ahead" – you'll realize this halfway through the section. In this case, slow down on the problems. Employ strategies that trade off time for points: read each question twice, write more neatly, think more about each question, double check your answer. This class of strategies "burns" your free time and harnesses it into extra points! Strategy #2: Double check each problem. Okay, say you employed the strategy above, and still have a few minutes left at the end. What do you do? Go back and check your problems. I don't mean glancing at them and mechanically saying to yourself "okay, yeah, that was right," but actually redoing the problem a different way. A very helpful trick is to actually mark "questionable problems" with a star while you're doing the test the first time around. Questionable problems are those you aren't sure about but don't want to waste time on the first time through. When you have time the second time around, go to the starred problems first. Oh, and what do you do if you finish a second check? Hand it in early? Nope, check it a third time. Take it from me – there are countless times I've found one serious mistake on a second or third check-through. That's 20-40 points right there, on a single section! To conclude, never hand in your test early. Manage your time during the first run-through so you never have too much time in the end. If you still end with too much time, check it over again! If you liked this article, you might enjoy: Why you need to prepare for the SAT / ACT How to get a perfect ACT / SAT score Want to improve your SAT score by 160 points or your ACT score by 4 points?We've written a guide for each test about the top 5 strategies you must be using to have a shot at improving your score. Download it for free now: