Question

ECO 252 - Macroeconomics

3.) Indicate if the long run growth of real GDP is likely to increase or decrease. Ceteris Paribus means all else constant.

a. Political unrest lead the government to impose a martial law and to restrict movement of people and goods, Ceteris Paribus.

b. The World Bank decreases the amount of loans available to subsistence farmers, Ceteris Paribus.

c. Quotas on imported goods are imposed, Ceteris Paribus.

d. The government offers tax credits to firms that build new factories, Ceteris Paribus.

e. Colleges around the country witness a major decrease in federal and state funding, Ceteris Paribus.

f. UNICEF puts into place an aggressive (and successful) program to fight hunger and childhood diseases, Ceteris Paribus.

Answer 1

a. Political unrest lead the government to impose a martial law and to restrict movement of people and goods, Ceteris Paribus-GDP would decrease as the said situation would hamper the production of goods and services,and as the movement of goods is restricted hence it will not the intended consumer too.

b. The World Bank decreases the amount of loans available to subsistence farmers, Ceteris Paribus.--GDP would decrease as these farmers in normal situation have little to sell at the market place,now when they would not have loans available they will not be able to produce enough.as gdp also involves income being generated from primary sector(that will now reduce).

c. Quotas on imported goods are imposed, Ceteris Paribus.-GDP would increase as it will set a numerical limit on how much of a product can be imported into a country. This helps to protect producers of domestic products from facing too much competition and ultimately going out of business,more products would be now sold at domestic front adding to the GDP of the economy.

d. The government offers tax credits to firms that build new factories, Ceteris Paribus.-GDP would increase as new factories means more goods bring added to the economy

e. Colleges around the country witness a major decrease in federal and state funding, Ceteris Paribus.-GDP would decrease.

f. UNICEF puts into place an aggressive (and successful) program to fight hunger and childhood diseases, Ceteris Paribus. GDP would increase,as raise in life expectancy,removal of malnourishment would enable people to work ultimately contributing to GDP.Heathy population serves as an asset for any economy.