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economics

Customer Question

Part I


In the early part of the last decade, there was an overproduction of coffee. The price dropped so low that producers' costs were higher than the market price. The reason this happened was that market prices became high before this, and the supply of coffee increased substantially. In the meantime, demand for coffee and everything else remained the same. Price Level 1. 


Coffee prices came down again, at first overshooting the former equilibrium price, throwing the coffee market into confusion. In the meantime, gourmet coffee houses began appearing, which began charging a premium for coffee in the period of falling prices. Price Level 2.


Gourmet coffee houses tend to open in high-rent areas and cater to higher income consumers. Because of the change they created for taste and preferences and the higher income market, the gourmet coffee houses had a win-win in a period of falling wholesale prices and increasing retail prices. Price Level 3.


But in the middle of the decade, the party was over, and wholesale prices started increasing because of some shortages caused by weather and the rising overall market prices again. Where is the new equilibrium price? Price Level 4.


Explain the changes in the supply and demand curves based on the above information. Draw a graph showing how the changes affect the price levels, supply and demand.


Part II


You have been asked to discuss the differences between the microeconomic definitions of supply and demand and the macroeconomic differences of aggregate supply and demand. Discuss what determines supply and demand and aggregate supply and aggregate demand. Explain what causes movements along the curve and shifts in the curve for supply and demand and aggregate supply and aggregate demand (make sure that you include price as a variable). Include whether this is an example of the microeconomic definition of supply and demand or the macroeconomic definition of aggregate supply and demand. Most importantly, did this cause a shift in the curves or a movement along the curves? What happened to equilibrium price, supply, demand, aggregate supply or aggregate demand? Describe your graphs.



  1. After Hurricane Katrina, what happened to the price of fish?

  2. After the development of the microchip, what happened to the price of computers?

  3. After the government raised tariffs on imported cheese, what happened to the price of domestic cheese?

  4. Polyester suits have become trendy again. What happens to their price?

  5. Internet auction sites are becoming more popular, and people are using them more and more.

  6. An new health report came out that said red wine lowers cholesterol.

  7. The government raises taxes.

  8. Inflation increases.

  9. Immigration laws are relaxed.


10.  The government increases spending.


Part III


The PPF curve shows the economic choices a country can make about production given scarce resources, a given technology, and a given quantity of inputs. Assume you are a developing country, producing food and clothing at maximum capacity. What could happen when foreign investors start investing in your country?


Discuss what type of foreign investments would be best for the economy’s PPF. What are the opportunity costs of these decisions?


Include what will happen to private and public choices as the economy grows. Support your discussion of these issues and consequences using at least 2 graphs.


_________________________________________________________


Part IV


Describe John Maynard Keynes’ contribution to the theories of Macroeconomics. Why was he such an important economist? Discuss the theories of two other 20th century economists who made a significant contribution to the study of economics.


Part V


Assume that Country A has a population of 500,000 and only produces one good—cars. Country A produces 100,000 cars per year. The people in Country A purchase 90,000 cars, but there are not enough cars to fulfill all the demand. They decide to import 50,000 more. The government buys 25,000 cars for its police force, and 10,000 cars are bought by companies to transport employees to other locations to work. They also export 65,000 cars to nearby countries for sale.



  • What is Country A’s GDP?

    • What is the composition of GDP by percentage?

    • What is the GDP per capita?

    • If government purchases go up in the short run, what happens to GDP? Show this graphically.

    • If consumption and government purchases go up, what happens to GDP in the long run? Why? How would this look in a graph?

    • How does this relate to Keynesian economics?




Part VI


Go to the Bureau of Economic Analysis on the Department of Commerce’s Web site, and look up the latest new release for real GDP.



  • Where are we in the business cycle?

  • What is the real GDP today?

  • What is the nominal GDP today?

  • What is the difference between nominal and real GDP?

  • What is the largest component of GDP?

  • What is the smallest component of GDP?

  • What is the fastest growing component of GDP and why?

  • What components of GDP were involved in the change from last month to this month?

  • What is the price index today?

  • What caused the change?

  • Is the GDP price index different from the CPI? How so?

  • Which price index—CPI, GDP, or PPI—makes the most sense to you?


Part VII


According to the Federal Reserve's Federal Open Market Committee (2011), the Federal Reserve "controls the three tools of monetary policy—open market operations, the discount rate, and the reserve requirements."


It goes on to say that using these three tools, the Federal Reserve influences the demand for and supply of balances that depository institutions hold at the Federal Reserve Banks, and in this way, it alters the federal funds rate. The federal funds rate is the interest rate at which depository institutions lend balances at the Federal Reserve to other depository institutions overnight.


Changes in the federal funds rate trigger a chain of events that affect the following:



  • Other short-term interest rates

  • Foreign exchange rates

  • Long-term interest rates

  • The amount of money and credit in the system

  • Employment

  • Output

  • Prices of goods and services (i.e., inflation)

  • Investment


Using your understanding of the financial system, the demand for money, banking and the money supply, the stock market, interest and spending, interest and investment, how money moves, and how monetary policy affects aggregate supply and demand and inflation, explain exactly how a change in the federal funds rate can trigger all these reactions. Use at least 4 graphs. Do you think we are in a liquidity trap today? Why or why not?  


 


Two important policy goals of the government and the Fed are to keep unemployment and inflation low, while at the same time making sure that GDP is increasing at an average of 3% per year. It is important to have the right mix of policies and that all the variables be timed perfectly.


_____________________________________________________


Part VIII:


 Assume that the country is in a period of high unemployment, interest rates are at almost zero, inflation is about 2% per year, and GDP growth is less than 2% per year. Suggest how fiscal and monetary policy can move those numbers to an acceptable level keeping inflation the same. What is the first action you would take as the president? As the chairman of the Fed? Why? What would be your subsequent steps? Make sure you include both the positive and negative effects of your actions and include the trade-offs or opportunity costs. 


Include the following concepts in your discussion:



  • Demand and supply of money

  • Income and Productivity

  • Interest rates

  • Okun’s law

  • The Phillips curve

  • Taxation

  • Government spending

  • Wages

  • Aggregate supply

  • Aggregate demand

  • Long run and short run

  • Costs of inflation

  • The multiplier and the tax multiplier

  • An open vs. a closed economy

  • The idea of tax rebates to stimulate the economy


Part VIIII:


Assume the country is in a budget deficit and carrying a very large debt. Discuss the dangers of a high debt to GDP ratio and a growing budget deficit. Would this change any policy changes you discussed in Part 1?


Two important policy goals of the government and the Fed are to keep unemployment and inflation low while at the same time making sure that GDP is increasing an average of 3% per year. It is important to have the right mix of policies and that all the variables be timed perfectly.


_______________________________________________________


Part X:


Assume that the country is in a period of high unemployment, interest rates are at almost zero, inflation is about 2% per year, and GDP growth is less than 2% per year. Suggest how fiscal and monetary policy can move those numbers to an acceptable level keeping inflation the same. What is the first action you would take as the president? As the chairman of the Fed? Why? What would be your subsequent steps? Make sure you include both the positive and negative effects of your actions making sure you include the trade-offs or opportunity costs.


Include the following concepts in your discussion:



  • Demand and supply of money

  • Income and Productivity

  • Interest rates

  • Okun’s law

  • The Phillips curve

  • Taxation

  • Government spending

  • Wages

  • Aggregate supply

  • Aggregate demand

  • Long run and short run

  • Costs of inflation

  • The multiplier and the tax multiplier

  • An open vs. a closed economy

  • The idea of tax rebates to stimulate the economy


Part XI:


 Assume the country is in a budget deficit and carrying a very large debt. Discuss the dangers of a high debt to GDP ratio and a growing budget deficit. Would this change any policy changes you discussed in Part 1?


Part XII


The financial crisis of 2008 has caused macroeconomists to rethink monetary and fiscal policies. Economists, financial experts, and government policy makers are victims of what former Fed chairman Alan Greenspan called a “once in a century credit tsunami”—in other words, nobody saw it coming.


Because you are now the expert in macroeconomics, your friends keep asking you your thoughts on what caused the financial crisis and whether the United States is going in the right or wrong direction with its current policies.


Focus specifically on the following:



  • Monetary policy

    • What monetary policies do you think caused the crisis?

    • What were the effects of the policies implemented in reaction to the crisis?

    • Do you think the solutions worked in the short term? In the long term?

    • Fiscal policies

      • What fiscal policies do you think caused the crisis?

      • What were the effects of the fiscal policies implemented in reaction to the crisis?

      • Do you think the solutions worked in the short term? In the long term?






Make sure you include the following concepts in your analysis:



  • Interest rates

  • GSAs

  • The financial services industries (CDOs, CMOs, the stock market, credit flows, money markets, etc.)

  • Tax rebates

  • Aggregate demand

  • Stimulus

  • TARP

  • Government debt and deficit

  • Inflation

  • Unemployment

  • GDP

  • Globalization

  • Foreign investment


In your opinion, did government intervention help or harm the economy before and after the panic of 2008? Would you have done anything differently?


 

Submitted: 3 years ago.
Category: Homework

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