3. The spending multiplier effect

Consider a hypothetical economy. Households spend $0.75 of each additional dollar they earn and save the remaining $0.25. The spending multiplier for this economy is.

Suppose investment in this economy increases by $100 billion. The increase in investment will lead to an increase in income, generating an increase in consumption that increases income yet again, and so on.

Fill in the following table to show the impact of the change in investment on the first two rounds of consumption spending and, eventually, on total spending and income.

Now consider the impacts of a change in taxes. The tax multiplier in this question will be____, thus, if taxes increase by $100 billion then spending will change by $ _____ billion.

Consider the market for single bedroom rental apartments in Hobart in 2019 with an upward sloping supply curve and downward sloping demand curve. The current equilibrium price of single bedroom rental apartments is $350 per week with 15,000

a. Draw a diagram showing the market for single bedroom rental apartments in Inner Hobart. Include an appropriate title and label the demand curve, supply curve, equilibrium price and quantity.

b. Consider if the government introduces a legally enforced price ceiling of $200/week that the price (rent) of single bedroom rental apartments in Inner Hobart can not be above.

i. On your diagram label the number of for single bedroom rental apartments supplied and demanded and the price with the price ceiling. Label the consumer and producer surplus and dead -weight loss with the price ceiling.

ii. Explain who is better and worse off a result of the price ceiling and why.

Theories that exist in the area of corporate financial reporting can be categorized into Leftists and Rightists. Explain the arguments of the proponents of each, which of these theories is most suitable for developing nations.

Suppose that market demand can be represented as p = 100 - 3Q. There are 10 identical firms producing an undifferentiated product, each with the marginal cost function MC = 3q. If the firms form a cartel, the marginal revenue for the cartel is MR = 100 - 6Q. Compare the competitive outcome with the cartel outcome. What is the individual firm's incentive to cheat on the cartel? (show the procedure you reach your conclusion)

Given the Covid19 crisis that has impacted global economies on an unprecedented scale. The level of disruption is likely to persist as government around the world is likely to implement policies at all level to arrest the uncertainties. Some of the extreme policy implemented include utilizing of sovereign reserves of last resort, reduced interest rate, and quantitative easing to mitigate job losses.

In 500 words, evaluate the situation above and suggest how corporations can effectively survive in the survival of the fittest.

International Political Economics - Question

1. What are characteristics of the world trade regime after WWII. What are the characteristics and principles of GATT.

International Political Economics - Question

1. Explain what for Game Theory is used in IPE. What are the main assumptions in Game Theory? Explain in detail the Chicken Game and give at least one example from IPE, which can be applied to the Chicken Game, and how it can be applied.

International Political Economics - Question

1. What is the study of IPE and what are the main approaches of IPE. Explain their main focuses and characteristics.

Short Story: People in America often wonder why we pay higher prices for pharmaceutical drugs versus countries that have socialized medicine like Canada, Great Britain, and Sweden. Here is the dirty little secret. These socialist governments often threaten U.S. pharma firms that they will steal the patents or outright reverse engineer the drug to figure out the formula. If they do this then they will get the drugs fast and cheap while the U.S. pharma firms get stuck with the total cost of the billions they spent on research and development on these life-saving medicines. This is dirty.

These socialist governments then negotiate a deal with the U.S. pharma companies to get the drugs shipped to them at a cheaper price and Americans end up paying higher costs. In a sense, American capitalism is supporting government-run healthcare in these socialist nations.

Of course, U.S. pharma firms are not innocent angels either. They do their best to maintain the monopoly on their drugs for a full 20 years before they will allow the production of generic drugs by all pharma firms.

Many of the new drugs that have been invented over the last 30 years was because of the hard work of the U.S. government-funded National Institute of Health and the bright professors and students in our leading universities such as UC Irvine Medical Center, UC of San Francisco, etc… All of this activity is actually funded by the U.S. taxpayer.

Finally, because of the endless bureaucratic red tape and expensive testing rigor demanded by the U.S. Food & Drug Administration, the average cost to produce a new drug is about $2.2 billion.

Essay Question: What a mess! What ideas do you have for this Oligopoly market structure to get U.S. pharma drug prices lower for the average American?     

19. Suppose you find that MU1( x1,x2)=2x2 and MU2( x1,x2)=2x1. What is the rate at which the consumer is willing to trade good 2 for good 1 at bundle (2,4)? (Note: enter a positive number, i.e. enter the quantity of good 2 that the consumer is willing to give up for an additional—marginal—unit of good 1.)
20. Suppose you find that the expressions of the marginal utilities for a consumer are given by MU1( x1,x2)=1 and MU2( x1,x 2)=3. Then you can conclude that:
a. This consumer has Cobb-Douglas tastes
b. For this consumer good 1 and good 2 are perfect complements
c. For this consumer good 1 and good 2 are perfect substitutes
d. None of the above
21. Suppose a consumer is always willing to give up 5 units of good 2 for an additional unit of good 1. For this consumer:
a. Good 1 and good 2 are perfect complements
b. Good 1 and good 2 are perfect substitutes
c. Good 1 and good 2 are both essential goods
d. None of the above
22. Suppose a consumer is always willing to give up 4 units of good 2 for an additional unit of good 1. Which of the following utility functions represents the tastes of this consumer?

a. u(x1,x2)=min{4x1,x2}
b. u(x1,x2)=min{x1,4x2}
c. u(x1,x2)= x1+4x2
d. u(x1,x2)=4x1+x2
e. None of the above

25. Consider the following utility functions: u1(x1,x2)=x1+x2 ans u2(x1,x2)=3x1+3x2 Do they represent the same tastes?
a. Yes
b. No
c. There is not enough information to answer

Use the shape of Von Neumann-Morgenstern utility function to explain gambling behavior

Find an article that explains a change to GDP (output) caused by any factor that influences either Dynamic Aggregate Demand or Dynamic Aggregate Supply. Explain how such a shift would be graphed using the DAD/DAS model.  

When this occurred, consumer confidence in Europe declined.  Consumer confidence impacts C, which is a component of AD (C+I+G+Nx) This is shown by people reducing their spending which impacts both the British and the US economy by having a decrease in the DAD (shift to the left). When this curve shifts to the left, we would expect US output to fall. We would also expect there to be a slight decrease in the price levels.

Requirements:

1) Post a link to any recent (3-5 years) news article that is explaining a change in either DAD or DAS.

2) Translate the article into the terms we used in this course. Identify which component of aggregate spending or aggregate supply is impacted, and in which direction.

3) Use the DAS/DAD model to predict the impact to price levels and output.  

Fiscal Policy

1. When responding to a recession, Congress faces two choices about its policy response--change taxes or change spending. If you support a large federal government, which policy would your endorse? Explain

2. In the Budget Challenge, you had an opportunity to increase or decrease taxes. What changes did you select? Who is helped or harmed by the changes that you proposed? How did the overall debt change as a result of your proposed changes?

In "The Shifts and the Shocks" by Martin Wolf, what are some strengths and weaknesses of this book? Why are they considered strengths and weaknesses?