1. In the IS-LM model, analyze the effects of increased optimism of businesses on all the endogenous variables (Y, r, I, S, C, T, L1, L2).

What is meant by market failure and discuss the main forms of market failure in an economy?

Imagine you are a time traveller and you enter a small medieval village and find your way to the only inn. The innkeeper rents rooms for $10 a week, which you pay, as that is the exact amount of money you brought. The innkeeper promptly goes across the street and buys a new pair of shoes (which were just being finished) from the cobbler for $10. Later the same day, the cobbler purchases a new bridle and a set of horseshoes (just produced) from the stable master for, again, $10. Right at the end of the day the stable master buys a year’s supply of candles (freshly produced) from the candle maker for, of course, $10. These are the only economic transactions in the whole village on that particular day.

What were the total expenditures? What was the total income earned? And finally, what stock of money was used to generate this income flow?

What is the relationship between production, expenditures, and income?

What comes first: production or expenditure? And is it conceivable, for instance, to have income and production, but no expenditures?

Suppose Congress decides to increase government spending and taxes by equal amounts. Use the IS-LM AD-SRAS-LRAS model to illustrate graphically the short run impact of the increase in government spending and taxes on output and interest rates, prices, consumption, unemployment rate and investment in short run. Explain clearly which curve would shift and why. What will be the long run impact of this increase in government spending and taxes on output and interest rates, prices, consumption, unemployment rate and investment. Show the appropriate movement of curves both for the short run and the long run. Be sure to label: i. the axes; ii. the curves; iii. The initial equilibrium values; iv. The direction the curves shift; and v. the short run equilibrium values and vi. The long run equilibrium values.

How can the Fed keep the economy from falling into a recession/boom due to the increase in government spending and taxes? Use a second IS-LM-SRAS-LRAS model to illustrate graphically the impact of both fiscal policy of increase in government spending and taxes and the monetary policy which prevents output from falling/rising. Be sure to label: i. the axes; ii. the curves; iii. The initial equilibrium values; iv. The direction the curves shift; and v. the terminal equilibrium values.

Use the Mundell-Fleming model (draw the appropriate graphs and show on the graphs as well) to predict what would happen to aggregate income, the exchange rate, and the trade balance under both floating and fixed exchange rates in response to the shock of a sudden decrease in exports in a small open economy.

Macropoland is currently experiencing a recession--consumption and investment are very sluggish, and unemployment is quite high at 9%. Currently, inflation is very low at 0.4% (the historical average rate of inflation is about 2%). The Macropolish President has just hired you as her economic advisor. Your job is to prescribe policy that would enable the economy to recover from the recession. Explain how you could use the standard tools of expansionary monetary policy and expansionary fiscal policy to stimulate this economy towards economic growth. Develop a response that includes examples and evidence to support your ideas, and which clearly communicates the required message to your audience. Organize your response in a clear and logical manner as appropriate for the genre of writing. Use well-structured sentences, audience-appropriate language, and correct conventions of standard American English.

Respond to the prompt with a five paragraph essay. The first sentence should be the statement of purpose. The first paragraph MUST include a strong thesis.

(Class is Principles of Macroeconomics)

The data provided below describe an ice-cream store’s daily production possibilities for milkshakes and sundaes.

Milkshakes: 0 20 40 60 80 100 120

Sundaes: 210 200 180 150 110 60 0

(a) Draw a correctly labeled graph of the store’s production possibilities curve (PPC) with milkshakes on the horizontal axis and sundaes on the vertical axis and label the endpoints using the numbers provided above.

(b) Is the opportunity cost of producing milkshakes increasing, decreasing, or constant? Explain using numbers in the table.

(c) The store is currently producing 80 milkshakes and 110 sundaes. Calculate the opportunity cost of increasing milkshake production from 80 to 100 milkshakes. Show your work.

(d) Would it be efficient for the store to produce 80 milkshakes and 150 sundaes? Explain using numbers in the table.

(e) Suppose the ice-cream store purchases a new machine that increases the output of milkshakes and sundaes. Show the effect of the change on the store’s PPC on your graph in part (a).

Assume both Atlantis and Zanadu produce helmets and baseballs. Using equal amounts of resources, Atlantis can produce 100 helmets or 200 baseballs, whereas Zanadu can produce 100 helmets or 400 baseballs.

(a) Assume both Atlantis and Zanadu experience constant opportunity costs in producing helmets and baseballs. Draw a correctly labeled graph illustrating the production possibilities curves (PPCs) for Atlantis and Zanadu, showing helmets on the horizontal axis and baseballs on the vertical axis. Plot the numerical values provided above on your graph.

(b) Calculate the opportunity cost of one helmet for Atlantis. Show your work.

(c) Which country has an absolute advantage in the production of baseballs?

(d) Which country has a comparative advantage in the production of baseballs? Explain.

(e) If Atlantis and Zanadu specialize based on comparative advantage and trade, would they be able to gain from trade if the terms of trade are 1 helmet for 3 baseballs? Explain.

Collect data on inflation and unemployment for the UK and the US during the 1970s and 1980s using OECD.stat. The 1980s was a period of significant disinflation for the two economies. Use the data gathered* and content of the chapter 4 of the textbook to answer the following questions:

a. Was the disinflation costly in terms of unemployment?

b. Does the data provide evidence that inflation expectations were being formed rationally during this period?

c. How can the concept of anchored expectations be used to suggest that the UK and US governments could have done to reduce the costs associated with disinflation.

(*) Plot the data with unemployment in the x-axis and inflation in the y-axis. Paste the charts at the beginning of your answer, and refer the analysis to them.

The builder of a new movie theater is trying to decide how many screens she wants. Below are her estimate of the number of patrons the complex will attract each year depending on the number of screens available. Number of screens: Total number of patrons 1 50,000 2 95,000 3 135,000 4 170,000 5 195,000 The owner expects to net $2 per ticket sold. Construction costs are $1,000,000 per screen. The screen can always be resold for $1,000,000 at the end of the year. However, the builder has to borrow $1,000,000 per screen and pay the lender the prevailing interest rate.

a) What is the marginal product per screen? In other words how much revenue does each screen generate

b) How many screens will be built if the interest rate is 6%

c) How many screens will be built if the interest rate is 8.5%?

d) How many screens will be built if the interest rate is 12%

Based on the materials we covered until now can you tell me in 150 words How has Business changed with so much data available?

3.a) Define the terms absolute advantage and comparative advantage.

b) Provide a real-world example from your personal or workplace experiences that demonstrate the concepts of absolute advantage and comparative advantage.

Hint: How household chores are divided-up among the members of your household is often a good example of absolute advantage and comparative

we talked earlier about measuring demand curves. how might we proceed if we want to measure congestion Externalities associated with various outdoor recreation activities?

Q2. If C=700+0.8Yd, I= 400, Tax=10%, & G= 200, then:

(A) Derive equation for AD
(B) Determine equilibrium value of output.

(C) Calculate value of multiplier

(D) Repeat first 3 parts if Govt. spending is increased to 300
(E) Show changes through graph.

The Watergate crisis in the early 1970s led to the first resignation of a sitting president in American history. What did Richard Nixon do in the Watergate crisis to lead to his resignation?

1- From the above table show the three stages of production?
2- Describe the relationship between marginal and average product.
3- If the price of output is $10 , and labor’s wage is $350. How many labors will be hired (L*)?

Inputs of labor Total
Product (TPL) Marginal product of labor (MPL) Average product of labor
(APL) Stages of production
0 0 — —
1 60
2 110
3 150
4 185
5 210
6 225
7 230
8 235
9 230