Economics 101: Basic Economic Principles

Part I: Multiple Choice Questions

Economic Principles代写 Economics 101: Basic Economic Principles. Part I: Multiple Choice Questions. Question 1、Question 2、Question 3 ···

Question 1

The GDP is equal to $650. GDP can be calculated using three methods including national expenditure, factor incomes, and values of output. In this case, the GDP is calculated by aggregating values of production. That is the total sales minus cost of materials.

Question 2  Economic Principles代写

((120 – 150)/150) * 100 = 20 % is Wonderland’s rate of inflation in year 2.

Inflation is calculated by taking the price index from the year in interest and subtracting the base year from it, then dividing by the base year. The result is then multiplied by 100 to give the percent change in inflation. Inflation is the increase in the prices of goods and services over time. Consumers will have to spend less on year two than they spend in year one and hence the economy of Wonderland underwent deflation in that period.

Question 3  Economic Principles代写

It is structural unemployment. It occurs when there is a mismatch between the job available and the skills levels as well as availability of the unemployed. There are cases when the unemployed are unable to move from areas of high unemployment to areas where there is shortage labor.

Question 4  Economic Principles代写

When the aggregate disposable income decreases in the economy, the planned total consumer spending and saving both reductions. Disposable income is the amount of income that is available for spending and savings by households. When disposable income increases, households have money to save or spend and as a result increases the rate of consumption and vice versa.

Question 5  Economic Principles代写

Positive net private domestic investment expenditures occur in economy C only. GPDI is the measure of money that domestic businesses invest within their own country. Net PDI is calculated by subtracting depreciation of the capital. AS such, if the depreciation is higher than the GPDI, then the PDI will negative, and the opposite is true. On the other hand, when GPDI is equal to depreciation, the NPDI will be zero.

Question 6  Economic Principles代写

A to D represents a peak, recession, trough, and expansion respectively. Business cycle means economic fluctuation cycle that a business undergoes. Peak is the optimum productivity of business resources. At recession, the business resources are underutilized, and hence the owner of the business is looking for ways to optimize operations. The process continues until the business hits trough where the business cannot continue to decline but stop activities to reorganize its resources. Eventually, if the business can get out of the trough period, it starts to increase operations, and hence, growth begins to occur.

Part II: Short Essay

Question 3  Economic Principles代写

The relationship between the level of production in October and the level of aggregate expenditure in October can be explained using the Keynesian AD/AS model as shown in figure 1 below.

Economic Principles代写
Economic Principles代写

Figure 1: Keynesian Model

The level of production for October is dependent on the market demand that, according to Keynes is not stable can change unexpectedly.  Economic Principles代写

Aggregate demand, on the other hand, is made of consumption, investment, government, and net export expenditures. In this sense, productivity is dependent on demand. Therefore, the sudden decrease in business inventories in October is a result of business anticipation of poor economic performance in future. If businesses were anticipating future profits, they would have invested heavily in the month. A higher degree of business confidence encourages investment and hence increase production. The production levels are effects by the consumption rate which is simulated by the government expenditure.

Therefore, as the economy moves into November, the government would try to stimulate production and demand. Since aggregate demand is volatile at full employment at Yp, if it falls it leads to the recessionary gap. Although the economy will at equilibrium, it will not be full employment at Y1. According to Keynes, the government will need to stimulate the aggregate demand to return aggregate demand to match output by increasing spending.

Question 4  Economic Principles代写

The aggregate expenditure model is used to get the solution to this problem. It is the sum of expenditures of all final goods and services at a given price level. AE is the total amount of money that households will spend at different levels of income. Thus, AE is the total consumption, investment, government, and net export expenditure.

Consumption is the purchase by people of final goods and services which does not include capital assets. A mathematical equation is created to explain consumption as shown below:

C = m(DI) + b


            m = marginal propensity to consume (mpc), measured as DC/DDI

            DI = disposable income

            b = autonomous consumption (expenditure)

C = 0.90(DI) + 300

Overall AE model is given by

AE = C + I + G + X – M


            C = total consumption expenditure

            I = investment expenditure

            G = government expenditure

            X = export expenditure

            M = import expenditure

AE = [0.90(DI) + 300] + 350 + 250 + (40-45)

AE = [0.90(DI) + 300] + 595

DI = Y-T

Therefore, AE = [0.90(Y – 50) + 300] + 595

AE = 0.90Y – 45 +300 + 595

AE = 0.90Y + 850

Equilibrium Condition: Y = AD

Thus, Y = 0.90Y + 850

Y = 8500

The Congress should increase government expenditure by 9 trillion as shown in the IS-LM diagram below.

Economic Principles代写
Economic Principles代写

Figure 2: LS-LM curve

Question 5  Economic Principles代写

A reduction in interest rates at each price level. Low-interest rates encourage investments through borrowing. In the economy has high unemployment and in dipping to a recession, the government can use expansionary monetary policy by reducing interest rates to stimulate investment and consumption. Thus, the AD0 curve shifts to AD1 as shown in figure 3 below.

Economic Principles代写
Economic Principles代写

Figure 3: Reduction in interest rate

A major cut in Federal spending for health care. Lower government spending leads to the shift in the AD curve to the left as shown in figure 4 below. The policy maybe as a result of high inflation.

Figure 4
Figure 4

Figure 4: Reduction in government spending

A 12 percent increase in nominal wages (without a change in productivity). It is also referred to wage inflation. It is mostly caused by minimum wages or industrial action by unions to increase wages. As a result, there will be high money supply which will attract higher demand for goods and services and hence increase in prices. It may result in inflation.

Figure 5
Figure 5

Figure 5: Wage inflation

Depreciation in the international value of the dollar. The prices of export will fall in the international market. As a result, the number of domestic products and services will increase as shown in figure 6 below. On the other hand, the imports from international market will be more expensive at the local domestic market. Therefore, depreciation increases exports and reduces imports and the net aggregate demand for domestically produced goods will increase.

Figure 6
Figure 6

Figure 6: Depreciation of the dollar


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