1.Economic data has shown a relationship between Inflation and Unemployment rates. What is this relationship called? What are some determining factors of the relationship? How has government...

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1.Economic data has shown a relationship between Inflation and Unemployment rates.
What is this relationship called? What are some determining factors of the relationship?
How has government fiscal/monetary policy been utilized to attempt to manage this
relationship?
2. International trade issues continue to permeate the news media.
Why is International trade an important issue? What is the primary rationale behind trade
between parties? How does currency market management by governments (fixed
exchange rates versus floating exchange rates) affect trading between countries?
3. "Corporate America has been accused of spending the last 30 years seeking out ways to
reduce, or increase the efficiencies of its, labor force resource requirements".
Is this statement an accurate reflection of Corporate America's 'modus operandi'? If so, is
this behavior a natural consequence of technological advancement and structural
unemployment? If not, is Corporate America operating under the principle of "Profit
Maximization"?
4. You win a lottery and are offered the lump sum payment of $380,000.00 or the right to
receive $100,000 per year for five years.
What is the lottery payment plan implied rate of time preference (approximation is ok)?
What is your implied rate of time preference, if you decide to take the lump sum versus the
annuity? How would your expectations of future inflation affect your decision process on
choosing lump sum versus annuity? Show all calculations?
5. In a simple closed economy with an annual GDP of 2000 goods in year 1 and a static
money supply of 2000 units.
What would you expect to happen to the price level of goods in this closed economy over
time? Explain your answer and show calculations?
6. The annual (Year 1) GDP of a simple closed economy is 1000 units with annual savings of
100 units and a 15% Tax Rate and a 5% Transfer Payment rate.
Show and explain the changes on annual GDP, Consumption, Savings and Net Taxes of a
increase in annual government spending from 100 units to 200 units?
What would be the change on the annual GDP, Consumption, Savings and Net Taxes if
annual savings (in year 1) rose from 100 units to 150 units? Show and explain all
calculations?
7.Is Monetary Policy an effective long term solution to solve a country's economic problems?
Answered Same DayDec 31, 2021

Solution

Robert answered on Dec 31 2021
29 Votes
1.Economic data has shown a relationship between Inflation and Unemployment rates.
What is this relationship called? What are some determining factors of the relationship?
How has government fiscal/monetary policy been utilized to attempt to manage this
elationship?
Answer:
The relationship between inflation and unemployment rates is called ‘Phillips curve’. The Phillips curve in the
short run implies an inverse relationship between inflation and unemployment rate. Some determining factors of
the relationship; a) the deviation of cu
ent level of output from its potential level, b) the deviation of cu
ent
unemployment rate from its natural rate and c) expected inflation rate.

Suppose the economy is suffering from a very high unemployment rate. In such a case, the government would
follow expansionary fiscal policy. Under this policy, government would increase its expenditure and reduce
taxes. As a result, disposable income would increase, causing consumption expenditure and hence aggregate
demand to rise. The rise in aggregate demand would lead to increase in labor demand in the economy and
hence unemployment will fall. Further, it would result in increase in the price level because aggregate demand
has increased relative to aggregate supply. Thus we find an inverse relationship between unemployment rate
and inflation rate.

On the other hand, suppose economy is suffering a very high inflation rate, in such a case, the government
would follow contractionary fiscal policy. Under such policy, government would reduce its expenditure and
increase taxes. As a result, disposable income would fall, causing consumption expenditure and hence
aggregate demand to fall. The fall in aggregate demand would lead to decrease in economy’s output and price
level. Moreover, due to fall in economy’s output, unemployment would rise. Thus we again find an inverse
elationship between unemployment rate and inflation rate.



2. International trade issues continue to permeate the news media.
Why is International trade an important issue? What is the primary rationale behind trade
etween parties? How does cu
ency market management by governments (fixed
exchange rates versus floating exchange rates) affect trading between countries?

Answer:
International trade is defined as the exchange of services, goods and capital between different countries. It is
an important issue because of following reasons;
1. GDP of many countries are dependent on trade
2. International trade facilitate transfer of technology
3. It helps in providing economies of scale in the production
4. To consume goods which cannot be produced domestically
5. To attract foreign capital - required to increase economy growth of recipient country

The economic basis to trade is gains from trade. Two nations trade with each other when it is beneficial for both
of them to trade i.e. two nations would be participating in the...
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