In your answer be sure to explain what productivity and standard of living mean. Make a list of things that determine labor productivity. Productivity and standard of living are related because the quantity of goods and services produced from each unit of labor (productivity) determines how well or how comfortable we live (standard of living). Productivity plays a key role as a determining factor in living standards. Human capital, Physical capital, knowledge of technology and natural resources determine labor productivity. Use the data on U. S. Real GAP below to compute real GAP per person for each year. Then use these numbers to compute the percentage increase in real GAP per person from 1987 to 2005. Year Real GAP (2000 prices) Population 1987 $6,435,000 million 243 million 2005 $11 million 296. 6 million 1987 real GAP per person = = $26,481. 50 2005 real GAP per person = = $37,397. 20 Increase in real GAP per person from 1987 to 2005 – $37,397. 20 – x 100 = 41. 22% 1. What are the basic differences between bonds and stocks?
Stocks differ from bonds in that stocks are equity finance and bonds are debt finance. Additionally, stocks give you partial ownership in a company whereas with bonds you do not have ownership. A bond is an IOW with the company as a lender whereas stocks are not. Stock present greater risks but also can possibly have greater return than bonds. In the event a company runs into financial trouble, those with bonds are paid before those who have stocks. If a company does well, those with shares enjoy the advantages but those with bonds only earn the interest from their bonds. Suppose that you are a broker and people tell you the following about themselves. What sort of bond would you recommend to each? Defend your choices. A. “l am in a high federal income tax bracket and I don’t want to take very much risk. ” b. “l want a high return and I am willing to take a lot of risk to get it. ” c. “l want a decent return and I have enough deductions that I don’t value tax breaks highly. ” 3. Your brother-in-law wants to buy either stock or bonds in Cedar Valley Furniture, which manufactures wooden furniture.
He wants your advice on whether to buy stock or bonds. Explain how each of his quotes below should affect his choice between the stock and the bond. A. “l have reason to believe that people are soon going to find rocking chairs have health benefits. ” – He should buy stock because when Cedar Valley Furniture does well financially, he will reap those benefits as well. B. “l would like to tell people I am part owner of Cedar Valley Furniture. ” – He should buy stock because this gives him partial ownership in Cedar Valley Furniture. C. “l do not want to take on much risk. He should buy bonds because he has less risk than with stock.