Q1. BMME5103 2 forgone entrepreneurial income to be $10,000 a year. She used $500,000 in savings that earned 5 percent interest annually to finance the new business. In the first year, the firm earned revenue of $1,500,000. The costs for rent, supplies, and employees' salaries were $1,100,000. What was the accounting profit for the new business? What was the economic profit (or loss)? Explain your calculations for both questions.

Q2. As the economy slipped into recession in 1980 and 1981, the Fed was under enormous pressure to adopt an expansionary monetary policy. Suppose it had begun an expansionary policy early in 1981. What does the text's analysis of the inflation unemployment cycle suggest about how the macroeconomic history of the 1980s might have been changed?