Explain why, in any period, a country’s net capital inflows equal its trade deficit? Include examples.

2) The demand function for a good is ?? = ?(?, ?, ?) = ? − ?? and its supply function is ?? = ?(?, ?, ?) = ? + ??, where a, b, c, and e are positive constants. (Keep in mind that sometimes we call a, 2 b, c, and e “parameters” and that they are “exogenous” variables. In contrast, p and Q are “endogenous” variables.) a) Solve for the equilibrium price ? ∗ = ? ∗ (?, ?, ?, ?) and quantity ? ∗ = ? ∗ (?, ?, ?, ?). b) Using calculus, compute the effect of an increase in parameter a on ? ∗ and ? ∗ . Draw ?? and ?? and illustrate the just noted effects graphically.

I was able to solve part A. I got: P* = [(a-c)/(b+e)] and Q* = a - b[(a-c)/(b+e)]. I am just unsure about part B.

Thank you,

Construct a neat production possibilities model of civilian and military goods, and use it to explain and illustrate the concepts of scarcity, choice and opportunity cost.  Note: You need to add the graph.

(b) Explain under what circumstances would a country operate inside its PPF

An increase in labour hours will lead to Question 1 options:

a) neither a movement along nor a shift of the aggregate production function.

b) a movement along the aggregate production function.

c) a downward shift of the aggregate production function.

d) both a movement along and an upward shift of the aggregate production function. e) an upward shift of the aggregate production function.

Question 2:-

An increase in labour productivity ________ the real wage rate and an increase in population ________ the real wage rate.

Question 2 options:

Question 3:- Labour productivity rises when

Question 3 options:

Question 4:- Capital increases when

Question 4 options:

Question 5:- Which of the following is false?

Question 5 options:

Question 6:- All of the following are sources of loanable funds EXCEPT

Question 6 options:

1.      What could cause a previously upward-sloping yield curve to flatten out and eventually become downward sloping?

2.      “An increase in government spending financed by borrowing from the public will increase the supply of money.” Comment on this statement.

3.      Assume the government finances a spending increase by issuing new securities. Does this create a burden on future generations? Why or why not? Would it make a difference whether the spending increase was used to finance the building of a new highway or to send troops abroad to fight a war in another country?

4.      Explain how the sharp decline in housing values contributed to the financial crisis that started in 2008.

5.      In the early 1930s, interest rates were extremely low and money supply fell sharply. Does this indicate that the Fed used expansionary or restrictive monetary policy? Explain your answer.

6.      Do you think the Keynsian or the monetarist view provides a better explanation of the causes of the Great Depression? Why?

7.      Comment on the following statement:

         “A balance of payments surplus may lead to inflation, while a balance of payments deficit may lead to unemployment.”

8.      Comment on the following statement:

         “A trade imbalance can persist as long as the central bank wants it to.”

9.      In the early 1980s, the U.S. trade deficit increased sharply, yet at the same time the value of the U.S. dollar increased steadily. How can this be explained?

10.    Comment on the following statement:

         “If a central bank used expansionary monetary policy to lower the value of the domestic currency, the country’s trade imbalance would immediately improve.”

11.    Assume interest rates in the U.S. are currently 5% and you expect the Japanese yen to appreciate by 2%. How much interest would the Japanese government have to pay on its government bonds for Americans to buy them?

12.    “Either expansionary fiscal policy or a currency depreciation will increase domestic national income by decreasing the level of foreign output demanded.” Comment on this statement.

13.    “A perfect-foresight model predicts that expansionary monetary policy has no effect on the level of output.” Comment on this statement with the help of an AD-AS diagram.

14.    When the federal government runs a budget surplus rather than a deficit, how will the public’s bond holdings and the supply of money be affected?

15.    “The central bank can lower the budget deficit through open market purchases.” Comment on this statement. In your answer discuss whether money financing or debt financing is more inflationary.

PART 6: True or false and multiple-choice questions

Question 16: True or false, firms in situation of monopolistic competition have deadweight losses associated with monopoly because of barriers to entry.

Question 17: Which of the two demands functions below is most elastic

A) Qa=100-2p

B) Qb=120-p

Question 18: If a buyer values an object for $4 and a seller’s cost is $1, which of the statements below is false!

1. If a transaction takes place, total surplus will be equal to $3
2. For the exchange to occur, the price has to be equal to $2.50, no other prices will allow an exchange to occur.
3. Whenever an exchange takes place, the allocation is efficient.
4. The buyer is ready to pay up to $4 for the object

Question 19: True or false, price discrimination is inefficient.

Question 20: Which of these goods’ demand is likely to be most inelastic

1. An inhaler for asthmatic people
2. A generic soft drink brand
3. Cellphones
4. Airline tickets

Case Monopoly power and competition policy We have seen that a monopoly creates a social loss compared to a perfectly competitive market. If it is possible to increase the level of competition in a monopolized market, then society is better off since social surplus increases. Competition policy (also known as antitrust policy) deals with markets where competition can arise; however, given the behaviour of some firms in those markets, competition is restricted. There are markets in which increasing the level of competition is not feasible, so competition policy does not apply. This is the case of a natural monopoly, which will be discussed at the end of this chapter. Broadly speaking, competition policy can be divided into policies to deal with monopoly power that already exists, and policies to deal with mergers that may increase monopoly power. While mergers will be discussed in the next chapter, here we discuss policies to address existing monopoly power. Since the UK belongs to the European Union, EU competition law takes precedence where it is relevant, essentially in the case of larger businesses with significant European or global activities. The original Common Market was created by the 1956 Treaty of Rome. The modern and enlarged EU is largely underpinned by the 1999 Treaty of Amsterdam. Article 81 of this treaty prohibits anti-competitive agreements (called cartels) that have an appreciable effect on trade between EU member states and which prevent or distort competition within the EU. Article 82 prohibits the abuse of any existing dominant position. A firm has a dominant position in a given market if it has a large market share in that market. For example, Microsoft has a dominant position in the market for operating systems (OS) for PCs, with a market share of around 90 per cent. Article 82 prohibits the abuse of a dominant position not the dominant position itself. A firm can become a dominant firm simply because it is more productive than the others and this is fine for competition policy. What is not fi ne is a firm that uses its dominant position to restrict competition in the market. Responsibility for enforcement of these articles lies with the European Commission. Although global businesses are increasingly subject to transnational competition law, many businesses still operate primarily within one country; national decisions are then appropriate. Within the UK, these are governed by the Competition Act 1998 and the Enterprise Act 2002. The latter made it a criminal offence, punishable by a jail sentence, to engage in a dishonest cartel. Two key institutions addressing UK competition policy are the Office of Fair Trading (OFT) and the Competition Commission. In particular, the OFT has the power to refer cases in which existing monopoly power may be leading to a ‘substantial lessening of competition’ to the Competition Commission for detailed investigation. Prior to the Enterprise Act 2002, the Competition Commission was asked instead to evaluate whether or not a monopoly was acting ‘in the public interest’, without any presumption that monopoly was bad, and many previous judgements of the Commission concluded that companies were acting in the public interest, for example because they had an excellent record of innovation, despite having a monopoly position.

Questions on case study:

1. Explain the ways in which a monopolist can abuse its power when compared to a perfect competitor.

2. In light of your answer to question 1, explain why it is important for monopolists to be regulated to protect the interests of consumers, as done by the OFT and the Competition Commission.

3. Discuss how monopolists can be beneficial to the economy and consumers.

What are the advantages and disadvantages of permitting patients to buy out of the price-controlled medical system

in 300 to 400 words, . Why is Germany so successful at international trade?
What has happened economically in China during the past twenty-five years?

Suppose we have two firms in a market to which entry is restricted. The inverse demand function facing these two firms is given by p = 130-2q, where q = q1 +q2. Both firms have the same costs of production: C = 10q.
(a) Compute the best response functions and find the Cournot equilibrium. What would be aggregate output, price and profit for each firm?
(b) Now suppose firm 1 gets to choose q1 before firm 2 chooses q2. Suppose also that firm 1 knows the best response function of firm 2. What output should firm 1 produce to maximize profit? What output would firm 2 produce? What will be the price? What profit will each firm make?
(c) If the manager of the firm 1 has an option of choosing before, simultaneously, or after firm 2, which will he choose?
(d) Now assume that owners of the firms decided to collude. Calculate symmetric collusive equilibrium. Are both firms better than in part a)?
(e) This collusion possibility is, however, discussed only and verbally agreed to it. Firm 1 however thinks that since this is only verbal agreement, it could be violated. Would any of these two firms violate the collusive agreement (assuming the other firm honours the agreement)?Why yes or why not? What is the magnitude of the inducement to violate the collusive agreement?
(f) Show all your results in two graphs: (i) q-P plane (with demand, marginal revenues, marginal cost curves) and (ii) q1-q2 plane (with reaction functions, and isoprofit curves).

The economic and financial crisis of 2008-2009 represents the most serious economic downturn in the U.S. and the world since 1929. Review and discuss the Federal Reserve and its role in our economy during this time including a discussion of our nation's three main economic goals. Describe the historic monetary and fiscal policy efforts undertaken by the U.S. Government and Federal Reserve including both the traditional and non-traditional measures to ease credit markets and stimulate the economy.

When would you want to use value-of-service pricing instead of cost-of-service pricing?

When would you like use negotiated pricing?

Pick any two questions (each question should be half a page)

10. Globalization seems to have brought benefits for almost everyone, though one exception is African farmers. Blocked from global food markets by trade restrictions, Africans cannot take part in the prosperity globalization has brought to the rest of the world. Many of the health crises such as AIDS, malnutrition, and even starvation are clearly linked to poverty. Moreover, many of Africa’s nations are politically unstable. If African farmers had better access to global markets, what would the implications be for African societies, nations, and economies?

11. Explain how our standard of living depends upon our level of real GDP per person but there might not be a one-to-one relationship between the standard of living and real GDP per person. Give examples of things that can effect one but not the other.

12. "If country A has a higher level of real GDP per person than country B, then people in Country A must enjoy a higher standard of living than people in Country B." Is this statement true or false and explain your answer.

13. Explain the relationship(s) between full employment, cyclical unemployment, the natural unemployment rate, and potential GDP.

14. For the past decade, the unemployment rate in Western Europe has been higher than the unemployment rate in the United States. Based on this fact, is the natural unemployment rate larger in Western Europe or in the United States? Why might the natural rates differ between the two areas?

15. In the late 1970s, the inflation rate was over 10 percent per year. Many home mortgage lending institutions had mortgages outstanding that had been made in the 1960s at nominal interest rates of around 5 percent per year. Many of these lending institutions failed; what can explain the high failure rate of lenders in the late 1970s?

16. CPI is not necessarily a reflection of how all consumers experience inflation. How does your personal market basket compare to that of the average American household? Given that college students may rely on more fixed incomes than most groups (financial aid), why do price trends pose more of a problem for this group?

17. Policymakers (especially the Federal Reserve) tend to focus more on core inflation when designing policies. Why core inflation is a useful measurement for the government or economists?

18. Classical growth theory is based on the work of Thomas Malthus, an economist from the early nineteenth century. Very few modern-day economists would refer to themselves as Malthusians. The persistence of this viewpoint represents what one can only refer to as the triumph of despair over experience. At some point in history, Malthusian theory might have been applicable. But certainly since the industrial revolution, parents have chosen to have fewer children. And this shift only gets stronger as economic growth advances. Is the assumption correct that the population growth rate is primarily determined by economic growth with a positive relationship?

19. Is there convergence or divergence in standards of living amongst nations?

20. What is the role of economic growth for economic inequality?