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ECO2: Macroeconomics Writing Assignment

WRITTEN ASSIGNMENT 2 QUESTIONS

• A government official announces a new policy. The country wants to eliminate its trade deficit, but will strongly encourage financial investment from foreign firms. Explain why this statement is contradictory. (12 points)
• If you observed a country with a rapidly growing trade surplus over a period of a year or so, would you be more likely to believe the country’s economy was in a period of recession or of rapid growth? Explain. (12 points)
• Imagine the U.S. economy finds itself in the following situation: a government budget deficit of $100 billion, total domestic savings of $1,500 billion, and total domestic physical capital investment of $1,600 billion. According to the national saving and investment identity, what will be the current account balance? What will be the current account balance if investment rises by $50 billion, while the budget deficit and national savings remain the same? (12 points)

The table below lists the maximum feasible quantities of digital apps and tablet devices that can be produced in 1 hour using all resources—land, labor, capital, and entrepreneurial talent that is available in the Southland and East Coast. In the Southland, residents can use all their resources to produce either 90 digital apps or 225 tablet devices per hour. In East Coast, residents can use all their resources to produce either 100 digital apps or 50 tablet devices per hour. Assuming constant opportunity costs of producing digital apps and tablet devices in both countries answer the following questions.

1. What is the opportunity cost of producing tablet devices in Southland? What is the opportunity cost of producing digital apps in Southland? (4 points)
2. What is the opportunity cost of producing tablet devices in East Coast? What is the opportunity cost of producing digital apps in East Coast? (4 points)
3. Which country has a comparative advantage in producing tablet devices? (4 points)
4. Which country has a comparative advantage in producing digital apps? (4 points)
5. Hydraulic fracturing (fracking) has the potential to significantly increase the amount of natural gas produced in the United States. If a large percentage of factories and utility companies use natural gas, what will happen to output, the price level, and employment as fracking becomes more widely used? (12 points)
6. Some politicians have suggested tying the minimum wage to the consumer price index (CPI). What effects would this policy most likely have on output, the price level, and employment? (12 points)
7. Are Say’s law and Keynes’ law necessarily mutually exclusive? Why or why not? (12 points)

The table below describes the Santher’s economy.

• From the table, identify the equilibrium. (6 points)
• Assume that input prices fall so AS shifts to the right by 150 units. Identify the new equilibrium. (6 points)

This work, “Written Assignment 2 Questions,” is a derivative of   Principles of Macroeconomics  2e  by Steven A. Greenlaw and David Shapiro, OpenStax, used under   CC BY 4.0 . “Written Assignment 2 Worksheet” is licensed under CC BY 4.0 by Thomas Edison State University.