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3) Which one of the following topics does microeconomics study? A) effect of interest rates on national economic growth B) determination of total production in a country C) reasons for a fall in the price of orange juice D) effect of the government budget deficit on employment E) the effect of a rise in the Canadian dollar on Canada's exports

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Related textbook solutions

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Related questions

All of the following topics fall within the study of microeconomics except

a. the impact of cigarette taxes on the smoking behavior of teenagers.

b. the role of Microsoft's market power in the pricing of software.

c. the effectiveness of anti-poverty programs in reducing homelessness.

d. the influence of the government budget deficit on economic growth.

 

The Modified Keynesian Model

Y = C + I + G + X – IM … equilibrium condition in a 4-sector model where:

C = 150 + 0.9DI … consumption function

I = 50 … autonomous investment

G = 100 … autonomous government spending

X = 200 … autonomous exports

IM = 100 … autonomous imports

And also:

DI = Y – T + Tr T = 0 … autonomous taxes

Tr = 0 … autonomous transfer payments

YF = 5000 … full-employment Y

1. Solve for the equilibrium level of real output/income (Y*) in this economy.

2. Given the model above, net exports equal $________. Does this represent a trade deficit or trade surplus?

3. Given the model above, the federal budget has a (deficit/surplus) equal to $________.

4. What is the value of the MPC? … the value of the MPS?

5. Calculate the “oversimplified” expenditure multiplier.

6. Suppose that full-employment (YF) equals $5000. Is there a recessionary or inflationary output gap?

7. (Refer to question “6”.) How much is the gap equal to?

8. Suppose the government chooses to eliminate the gap by using expansionary fiscal policy (i.e., increasing G). Given the numbers above, by how much would government spending (G) need to increase to achieve the goal of full-employment?

9. Suppose instead that the government decided to lower taxes to eliminate the output gap in question “6”. How much would taxes need to fall to achieve the goal of full-employment?

10. Which action (raising G or lowering T) has the largest effect on the federal budget deficit and the national debt?

11. Suppose the national debt equaled $6000 before the tax cut (refer to question “9”). What would be the value of the national debt after this policy action?

In this module, we have learned that the trade balance, interest rates, and exchange rates are all related in an economic and fiscal policy. For decades, the United States and China have traded products through imports and exports, and for the most part, China is able to produce items at a lesser cost than the United States. Americans love a good value, but they also want quality. China, on the other hand, has grown dramatically and continued with “industrializing” the country, which has cost the government billions of dollars. Throughout this course, we will investigate the ongoing trade between these two countries, the costs of multinational companies that expand or complete business through the import and export exchange, and how the ongoing practice may create economic changes and instability for the individual organization.

Research the balance of trade in the United States and China and relate how historical changes in exchange and interest rates have affected imports and exports between the two countries.

Specifically address the following:

Explain how trade balance, interest rates, and exchange rates are related, and cite an example of how a rise or fall in one changes the others.

Does a deficit in China or the United States change the overall advantage or disadvantage of trade? Why?

Explore how the cost and quantity of imports and exports, such as electronic equipment, may be challenged by the rise and fall of these rates.

Incorporate the fluctuations of supply and demand into the costs incurred and decide ways management calculates estimations for further product needs.

Explain the philosophy of “international crowding out,” citing an example of how this may occur, and describe how excessive borrowing in one country has affected interest rates in the United States.

As an example, China and the United States “borrow” from each other to finance needs by purchasing government-backed securities from the other country. This practice provides one country with additional funds and also gives the purchasing country more control over interest rates or “borrowing costs” in the future. How does this influence interest rates in the domestic country and foreign country? Can one country gain control over another financially by continually financing another country’s debt?

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