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Setting Fiscal policy
Using what you have learned in this unit, choose a FISCAL policy that you would recommend to help an economy that is in a recession. You should not choose a monetary policy (i.e. interest rate manipulation, selling of bonds, or printing of money).
Explain how your policy would help increase aggregate demand. That is, does it increase C, I, G, or X?
Explain what would happen to prices (i.e. inflation).
You may use either the Modern Keynesian model or the Classical Model to conduct your analysis. Just be sure to note which one you are using.
Short term Treasury bills [3 and 6 month] have current annual rates of interest around 0.5%. Use that info plus your best forecast of inflation to calculate the real rate of interest on those bills.
What is the hypothesized elasticity of demand for one product/service that is produced by the company (or a product/company you are familiar with)?
Which of the following goods or services would be most likely to be subject to (1) external economies of scale and (2) dynamic increasing returns? Describe your answers.
What elasticity of demand did the Village Administrator seem to assume here in his prediction for 1970- 1971? Compute the approximate elasticity of demand (round off, two decimal places is close enough).
Suppose that the domestic demand and supply for hats in a small open economy are given by-Where Q denotes quantity and P denotes price.
Describe what effect a contractionary fiscal policy would've on the price level and real GDP starting from full employment equilibrium.
What price should DD set to maximize profits? What would output be if DD acted like a perfect competitor and set P = MC?
Assume that you're a member of the Board of Governors of Federal Reserve System. The economy is experiencing a sharp decline into a recessionary phase of the business cycle.
In a closed economy without a government sector, consumption is determined as 80% of the income available to households. Investment is autonomous at a level of £450.
Suppose an economy only produces single consumption well. Consider permanent upward shift of production function. Graphically describe the effects on each of following:
Changes in government spending and interest rates
Suppose you are provided with the following production relationships, where the input is fertilizer (pounds per acre) and the output is rice (cwt per acre). Using graph paper, please graph AVP, MVP, and MFC
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