Explain the Great Recession in terms of aggregate demand, before the recession and after the recession.
What will be an ideal response?
Before the recession many households were borrowing significant amounts of money to buy a house. Many were purchasing homes on the expectations that home prices would continue to rise. However, home prices began falling in 2006. The decrease in housing prices lead to a decrease in household wealth, shifting the aggregate demand curve to the left. When the recession officially hit in 2007 the government began a stimulus program in hopes of shifting the aggregate demand curve back to the right. Government spending increased and the Federal Reserve also lowered short-term interest rates to stimulate consumption and investment. While the government did take action, the results were not as positive as economists would hope. Unemployment in 2012 did not lower to the levels officials would have liked.
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The product life cycle theory predicts that comparative advantage shifts away from the country of origin if:
a. the product is introduced in many countries simultaneously. b. the product is highly demanded in international markets. c. the demand for the product drastically declines in the domestic market of the country where it was invented. d. other countries have lower manufacturing costs using the now-standardized technology. e. other countries develop highly skilled labor forces to improve product quality.
Explain the expression "time is more valuable than money." Explain in words and use a diagram to illustrate the implications of this for a person's labor supply curve
In the early 2000s, some argued that the Indian government impeded foreign investment with tariffs, investment caps, and tons of red tape. In terms of promoting or retarding economic growth, such policies:
A. increase growth because they keep people producing for the local market. B. decrease growth because they slow the growth of capital. C. increase growth because they stop exploitation by foreigners. D. decrease growth because they cause inflation.
If the United States looks more economically and politically stable relative to the rest of the world, this will
A) decrease the demand for dollars. B) increase the demand for dollars. C) have no effect on the demand for dollars. D) stop all trading between the currencies of the United States and other countries.