1. If policies were put into place to increase investment spending by $50 billion, what would be the potential effect on RGDP if mpc = .80? Explain.
If investment spending increased by $50 billion this would add to RGDP and initially raise it. If the marginal propensity to consume was 0.80, than approximately 80% of the additional dollars would be consumed by society, therefore increasing RGDP.
2. If disposable income remains stable, how can consumption change? Explain.
Consumption can still change even if disposable income remains stable because of the savings. If disposable income remains constant but people decide to save less of their income, then more of it can go towards consumption. For instance, in a simplified model where disposable income is $10 and one spends $8, then $2 is saved. But consumption can increase to $9 if that person only saves $1.
Tuesday, November 13, 2012
Monday, November 5, 2012
Inflation
How does unexpected inflation affect society?
Inflation, an increase in prices and the fall of the purchasing power of money, is an inevitable part of our economy. The value of inflation is not constant, and therefore varies each year. When the inflation rate is unexpected, people cannot prepare for its effects. Therefore, the unanticipated consequences hurt some people, but also help others. For example, when the inflation rate is unexpectedly high, loaners are hurt. When banks give fixed-rate loans, they expect the inflation rate to be a certain amount and factor that into the overall loan. But when the rate is actually higher, they end up losing money because the money they are repaid is worth less than they anticipated. The reverse is true for the borrowers of that money. Since the value of the money that they need to repay has actually decreased in value, they are spending less in order to pay off their debt so they gain from the situation. By the same token, in putting money away and saving it, it is actually hurting you, since over time this money will be worth way less because of unexpected inflation.
Tuesday, October 16, 2012
GDP
What does GDP measure and is it an accurate macroeconomic indicator?
GDP, or gross domestic product, measures the total worth of the goods and services produced by a nation. For instance, the total value of all goods and services made in the United States would be America's GDP. Every business transaction or deal that involves labor and payment counts towards the total GDP, but other labor, such as in home duties like cooking and cleaning, do not count towards GDP. The accuracy of GDP as an economic indicator is a somewhat debated topic. People might say that "yes" it is an accurate macroeconomic indicator because it does address a country's production abilities and total yield of that country, which demonstrates its wealth and progress. However, many people might also answer "no" and say that GDP is not an accurate economic indicator because of several flaws. Some of these flaws include the fact that traditional GDP does not have value judgments, does not consider environmental waste, and does not truly inform of a country's progress because it has nothing to do with the actual "happiness total" of the country.
GDP, or gross domestic product, measures the total worth of the goods and services produced by a nation. For instance, the total value of all goods and services made in the United States would be America's GDP. Every business transaction or deal that involves labor and payment counts towards the total GDP, but other labor, such as in home duties like cooking and cleaning, do not count towards GDP. The accuracy of GDP as an economic indicator is a somewhat debated topic. People might say that "yes" it is an accurate macroeconomic indicator because it does address a country's production abilities and total yield of that country, which demonstrates its wealth and progress. However, many people might also answer "no" and say that GDP is not an accurate economic indicator because of several flaws. Some of these flaws include the fact that traditional GDP does not have value judgments, does not consider environmental waste, and does not truly inform of a country's progress because it has nothing to do with the actual "happiness total" of the country.
Tuesday, September 11, 2012
Incentives
Describe 3 examples of how incentives can result in negative or unintended consequences.
While incentive is a main drive in the economy, it can sometimes lead to unintended or bad consequences. One example of how incentives can result in a negative outcome is when an incentive encourages an illegal or forbidden action. This can take the form of selling or buying illegal things or killing animals simply in order to make a profit. When someone's incentives motivate them to commit a crime or do an unethical thing, it has resulted in negative consequences. Another example of a negative consequence due to incentives is an incentive that ultimately hurts the economy as a whole. Finally, an example of unintended consequences resulting from incentives would be an incentive that leads to destruction. This could happen when an incentive motivates someone to do environmental, global, or personal damage.
While incentive is a main drive in the economy, it can sometimes lead to unintended or bad consequences. One example of how incentives can result in a negative outcome is when an incentive encourages an illegal or forbidden action. This can take the form of selling or buying illegal things or killing animals simply in order to make a profit. When someone's incentives motivate them to commit a crime or do an unethical thing, it has resulted in negative consequences. Another example of a negative consequence due to incentives is an incentive that ultimately hurts the economy as a whole. Finally, an example of unintended consequences resulting from incentives would be an incentive that leads to destruction. This could happen when an incentive motivates someone to do environmental, global, or personal damage.
Thursday, September 6, 2012
Power Market
Using Wheelan as a guide, discuss how economic decisions about what to produce, how to produce, and how much to produce are made.
In Naked Economics, Wheelan's first chapter discusses broad issues regarding economics, including the principles of market and production. In the economic context, many decisions must be made constantly in order to be successful in the marketplace. First, decisions about what to produce are based on the demand of the consumers. If a certain good is in high demand, it is more likely that it will sell and therefore it is a good product to make. Decisions regarding how to produce these things are made assuming the principle that everyone acts to maximize their own wealth. Since this is the case, products are to be produced in the cheapest manner and in a way that will minimize the producers costs. In order to choose how much of a good to produce, one relies upon demand of the consumer once again. If a producer is selling all of his goods at a reasonable price and making a steady profit, it makes sense that he should produce a larger volume of his product because since his goods are popular, they will be bought. On the other hand, if someone is unable to sell the amount of goods they have initially at a set price, they must make less goods so that they do not lose profit on the extra product that is not selling. In general, economic decisions about what to produce, how to produce, and how much to produce are made on the basis that one is trying to maximize his or his companies wealth. Also, these choices are made in order to reflect the actions of consumers, so that if demand is higher, production must also increase, and vice versa.
In Naked Economics, Wheelan's first chapter discusses broad issues regarding economics, including the principles of market and production. In the economic context, many decisions must be made constantly in order to be successful in the marketplace. First, decisions about what to produce are based on the demand of the consumers. If a certain good is in high demand, it is more likely that it will sell and therefore it is a good product to make. Decisions regarding how to produce these things are made assuming the principle that everyone acts to maximize their own wealth. Since this is the case, products are to be produced in the cheapest manner and in a way that will minimize the producers costs. In order to choose how much of a good to produce, one relies upon demand of the consumer once again. If a producer is selling all of his goods at a reasonable price and making a steady profit, it makes sense that he should produce a larger volume of his product because since his goods are popular, they will be bought. On the other hand, if someone is unable to sell the amount of goods they have initially at a set price, they must make less goods so that they do not lose profit on the extra product that is not selling. In general, economic decisions about what to produce, how to produce, and how much to produce are made on the basis that one is trying to maximize his or his companies wealth. Also, these choices are made in order to reflect the actions of consumers, so that if demand is higher, production must also increase, and vice versa.
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