The student, functioning as Director of Human Resources, for XYZ Company, and based on information
presented to the Board and on his or her own economic analysis, will prepare a written recommendation to the Benefits Committee on whether or not it makes sense to include mental health coverage in the company’s health plans with supporting rationale. You should take into consideration how you would respond to the following questions when preparing your recommendation:

1. Why does it matter whether demand for mental health services is more elastic than demand for other
   services?
2. The price elasticity of demand for ambulatory mental health services appears to be about -0.8, and the price elasticity for general ambulatory medical services appears to be about -0.3. How much would spending increase for each type of care if copays were cut from $40 to $25?
3. What managed care techniques do insurers use to control spending?
4. Is there evidence that better treatment of mental health problems reduces other spending?
5. Is there evidence that better treatment of mental health problems improves productivity?
   In addition to how you would respond to the above questions, you should also consider utilizing credible,
   outside sources to support preparation of your formal recommendation to the Benefits Committee

Sample Solution

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Review the attached presentations on exchange rates.

Then go to the X-Rates Web site (http://x-rates.com) and find the current:

a) exchange rate for the US Dollar (USD) and any other country’s currency that you wish to study.  Do NOT select the Chinese Yuan as your other currency since it is not a freely floating currency;

b) then in the Monthly Average display, select the last 12 months from the drop down menus and click “Go”;

c) based on the 12 months of data, which currency is appreciating (gaining value) and which is depreciating (losing value)?  Remember it can do both in a year.