Mt445-_02__Managerial_Economics

MT445- 02: Managerial Economics Unit 8 Project Professor Hernan Verlarde Chapter 19 5. (Economic Fluctuations) Why doesn’t the National Bureau of Economic Research identify the turning points in economic activity until months after they occur' Answer The economy does not move through phases smoothly due to fluctuations and random disturbances. These fluctuations are caused by random disturbances and seasonal fluctuations. As a snapshot Economists can’t always distinguish a temporary drop in production from the beginning of a downturn (McEachern, 2009). Temporary downturns due to weather and temporary peaks of business do not represent an accurate long term picture of the economic health. Recessions and depressions are measured over several quarters and only looking back at complete economic data will tell the true story. 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 Answers a.) The price level changes will affect both aggregated demand and supply curve. A drop in the price levels raises the overall quantity of goods demanded. An increase in price reduces the quantity of goods and services supplied and shift the short-run aggregate supply curve to the left. A decrease in the expected price raises the quantity of goods and services supplied and shifts the short-run supply curve to the right. b.) A decrease in consumer confidence causes a decrease of the demand curve. The decrease causes the demand curve to shift leftward. c.) The supply of resources increasing will cause the curve to shift leftward. This is due to the fact that more products being produced than what are being demanded. d.) As wage rate increases the supply curve is affected and shifts the curve upwards. Chapter 20 12. (Convergence) Explain the convergence theory. Under what circumstances is convergence unlikely to occur' Answer Convergence theory is based upon the pretext that developing countries can have economic growth faster that more advanced countries. They can grow faster because it is easier to copy technology that it is to develop it. Convergence is unlikely to occur in the poorest third of the world (McEachern, 2009). This is partly due to the increased growth of the population which reduces the quality of human capital. 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 Answer a.) When the economy is producing more consumer goods than capital goods there is lower growth. This would be demonstrated by a point on the axis where the y-coordinate is relatively high compared to its x-coordinate. This translates to less productive capacity of consumer goods in the future. b.) When the economy is producing more capital goods than consumer goods there is higher growth. This would be demonstrated by a point on the axis that is lower on the y axis and an increasing x-coordinate. This translates to a larger expenditure on capital goods results in a larger outward shift in next period's PPF. Reference McEachern, W. A. (2009). Economics A Contemporary Introduction. Mason, Ohio: Southwest Cengage Learning.