Ury Salinas Unit 8 Project MT445 Managerial Economics Chapter 19, Question 5 (Economic Fluctuations) Why doesn’t the National Bureau of Economic Research identify the turning points in economic activity until months after they occur? There are often fluctuations within the different phases of the economy which are caused the seasons and other chance occurrences. Oftentimes, these small disturbances are not enough to show economists that there is necessarily a problem because a drop in production might only be temporary.
Recessions and economic depressions have to be measured over a long period of time to get an accurate idea of the economic stability of a region or country, and often you have to look back a long period in order to understand the problem. Question 15 (Aggregate demand and supply) Determine whether each of the following would cause a shift of the aggregate demand curve, a shift of the aggregate supply curve, neither, or both. Which curve shifts, and in which direction? What happens to aggregate output and the price level in each case? a. The price level changes b.
Consumer confidence declines c. The supply of resources increases d. The wage rate increases a. Price level changes affect both aggregated demand and aggregated supply curves. When price drops, it raises the amount of goods that are in demand. The short-run supply curve curves to the right. When price increases, there is a drop in the quantity of goods and services supplied and the short-run aggregate supply curve curves toward the left. b. When consumer confidence declines, there is a decrease in the demand curve. This causes the curve to shift to the left. c.
When the supply of resources increases, more products are being produced which supersedes demand for the item. This will cause the curve to shift to the left. d. When wage rate increases, the supply curve shifts upward. Chapter 20, Question 12 (Convergence) Explain the convergence theory. Under what circumstances is convergence unlikely to occur? Convergence theory says that developing countries have better or faster economic growth than advanced countries. The thought is that they grow faster because its easier to copy the technology that is already in place, than it is to necessarily develop it on their own.
This theory states that convergence is unlikely to occur in the “poorest third” of the world, partly because of high population growth which reduces the quality of human capital. Question 15 (Growth and the PPF) Use the production possibilities frontier (PPF) to demonstrate economic growth. a. With consumption goods on one axis and capital goods on the other, show how the combination of goods selected this period affects the PPF in the next period. b. Extend this comparison by choosing a different point on this period’s PPF and determining whether that combination leads to more or less growth over the next period. . When the economy produces more consumer goods than capital goods, growth is lower. On the graph, this would be at the point on the axis where Y is very high compared to the X-coordinate. In the next period, this means that consumer goods have less production capacity. b. When more capital goods are produces than consumer goods, the growth is higher. On the graph, this would be where the Y-coordinate would be lower than its corresponding X-coordinate. This means that there will be more spending on capital goods and a greater outward shift for the next period.
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