Final Exam Course & Section: BU204-04 Unit: 9 Date: May 18, 2012 Questions: 1. Define any key terms that you feel are important in answering the following question as they are defined in the textbook and explain, in your own words what those definitions mean, and then thoroughly analyze each of the following changes in the market for loanable funds to answer the these questions Use the diagrams below, resizing them as necessary, to illustrate your analysis in explaining what happens to private savings, private investment spending, and the rate of interest if the following events occur. Assume the economy is closed (no transactions are made with foreign countries). a. …show more content…
Low demand for workers places increasing downward pressure on the nominal wage rate. [pic] A decrease in production costs creates a downward shift in the short-run aggregate supply curve. Wages continue to fall until labor market equilibrium returns them to long term levels. This new equilibrium point is the point on the graph where D2 meets S2. b. The government lowers taxes, leaving households with more disposable income, with no corresponding reduction in government purchases (9 points). [pic] Households with more disposable income have more money to spend. This shifts the demand curve to the right and increase the price people are willing to spend on goods. Higher prices of goods reduces the cost of labor. A decrease in the cost of labor allows companies to increase production. [pic] Equilibrium shifts to the point that I have indicated on the graph. Increased output creates an increased demand for workers. Upward pressure is felt on wages which raises costs and reduces the demand equilibrium. [pic] Wages increase to a point at which the surplus demand for labor is in equilibrium and wages return to their equilibrium level. 3. Define any key terms that you feel are important in answering the following question as they are defined in the textbook and explain, in your own words what those definitions mean, and then thoroughly analyze each situation to answer the following questions. An
Immediately after we are born, we start picking up sounds; the sound of our mother’s voice, the music playing in the elevator on the way to the car, and the happy cheers from a small child seeing their new sibling for the first time. We are always listening–picking up on conversations not meant for our ears, eavesdropping on the gossip of the adult world, and finding the meaning in the portentous silence. From all these auditory stimuli, we piece together the world around us to better understand what is happening to us, around us, and the secret happenings that were not for us to know. Great writers are the ones who listen and say nothing–who take it all in and save their classified information for a day when all the right words flow and form one epic story of the wondrous world we live in.
b) In a recession, the number of people experiencing economic hardship increases, so induced transfer payments such as unemployment benefits and welfare benefits increase. Induced taxes and induced transfer payments decrease the multiplier effect of a change in autonomous expenditure such as investments, and moderate recessions making real GDP more stable. Discretionary fiscal policy would be used in an attempt to restore full employment. The government might increase its expenditure on goods and services, cut taxes, or do some of both, increasing aggregate demand. An increase in government expenditure or a cut in taxes increases aggregate expenditure as well.
2.) Answer the following questions based on a reading of the above document and material from your textbook.
Directions: Answer each question in a paragraph—be sure to give specific details and examples. Remember that each of these questions has multiple parts to it. You must type your responses out and hand it to me by the end of our class period.
In the long run some jobs wages would rise do to finding a middle ground in production versus demand, but in the beginning wages would drop severely as many companies would be forced to close their doors overnight due to no employees. Some companies would fold due to not being able to hire people quick enough to remain in business, others would suffer serious setbacks. Wages would drop as businesses would lose money while trying to staff positions immediately. Once production was back on track and people were able to buy more goods some wages may increase but that would be after several years of having great sales, demand, and perfect production.Part B
a) It is easier to cut the pie, and therefore the economy can produce a larger pie.
22) Which of the following is considered a tax credit, which will directly reduce the taxes you owe?
3) Read the questions carefully. If you need to make any assumptions you must state them in order to receive credit.
An influx of labor abroad increases the domestic workforce in the foreign country, allowing the economy in both countries to expand. Given a certain level of demand for labor, increased supply intensifies competition for jobs and exerts downward pressure on earnings. Foreign labor has been a topic of reason due to the loss of jobs in the US, working conditions, and the effect it has on the foreign countries.
The diagram to the left shows how a trade union can force a rise in wages, but it could lead to a cut in the number of jobs. If the union secures the rise in wages from W1 to W2, the trade union mark up, then this leads to an increase in wages. However it also intersects the demand curve at a much higher point
A sudden increase or decrease in the supply of a particular good is also known as a supply shock. A supply shock is an event that suddenly changes the price of a product or service. This sudden change affects the equilibrium price. The two types of supply shocks that exist are the Negative Supply shock and the Positive Supply shock. A negative supply shock, which is a sudden supply decrease, will raise the prices and shift the aggregate supply curve to the left. A negative supply shock can cause stagflation due to the combination of raising prices and the falling output. Meanwhile a positive supply shock, an increase in supply, will lower the price of a good and shift the aggregate supply curve to the right. A positive supply shock could be advancement in technology which most certainly makes production more efficient which thus increases output. For example a positive supply shock could be shown in the early 1990s when communication and information technology exploded which resulted directly in productivity increase, and an example of a negative supply shock would be that of the high oil prices associated with Arab oil embargo of the early 70s is the classic example of this occurrence. Any other factor could also produce this effect. Such as if
For instance, if someone's income grows, then his demand for goods will increase, shifting his demand curve to the right. This will lead to a higher quantity being consumed at a higher price, ceteris paribus. Conversely, there can be a negative effect that shifts the supply curve to the left where a lower quantity is consumed at a lower price, ceteris paribus. This can occur when the price of substitutes falls or consumers begin to lose their taste for the product.
In any economy, once people realize that price levels are rising, a vicious cycle begins. People will start to ask for higher wages, anticipating higher price
Once you have read the textbook chapter and the Reading, answer discussion questions 1, 3- 5 (ignore questions 2 and 6).