Plentilandia is a country facing a recession. Plentilandian consumers become pessimistic aboutfuture economic conditions and reduce their total consumption. Use diagrams to answer thefollowing:a) Assume marginal propensity to consume is high in Plentilandia. What is the impact onconsumption, investment output, interest rate and the trade balance?b) Assume the marginal propensity to consume foreign goods and services is high inPlentilandia. What is the impact on consumption, investment output, interest rate and thetrade balance?

Part A: High Marginal Propensity to Consume in PlentlandiaWhen the marginal propensity to consume…

Answered: Plentilandia is a country facing a…

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter1: Welcome To Economics!

Section: Chapter Questions

Problem 6SCQ: Suppose we extend the circular flow model to add imports and exports. Copy the circular flow diagram...

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In its recent report, The Conference Boards Global Economic Outlook 2015, updated November 2014 (http://www.conference-board.org/data/ globaloutlook.cfm), projects Chinas growth between 2015 and 2019 to be about 5.5%. International Business Times (http//www.ibtimes.com/us-exports-china-have rown-294-over-past-decade- 1338693) reports that China is the United States third largest export market, with exports to China growing 294 over the last ten years. Explain what impact China has on the U.S. economy.
Without looking at Table 19.7, return to Figure 19.10. If we define a recession as a significant decline in national output, can you identify any post-1960 recessions in addition to the 20082009 recession? (This requires a judgment call.)
If a countrys currency is expected to appreciate in value, what would you think will be the impact of expected exchange rates on yields (e.g., the Interest rate paid on government bonds) in that country? Hint: Think about how expected exchange rate changes and interest rates affect a currencys demand and supply.
If domestic Investment increases, and there is no change in the amount of private and public saving, what must happen to the size of the trade deficit?
Explain briefly whether each of the following would be more likely to lead to a higher level of trade for an economy, or a greater imbalance of trade for an economy. Living In an especially large country Having a domestic investment rate much higher than the domestic savings rate Having many other large economies geographically nearby Having an especially large budget deficit Having countries with a tradition of strong protectionist legislation shutting out imports
Imagine that the economy of Germany finds itself in the following situation: the government budget has a surplus of 1 of Germanys GDP; private savings is 20 of GDP; and physical investment is 18 of GDP. Based on the national saving and investment identity, what is the current account balance? If the government budget surplus falls to zero, how will this affect the current account balance?
If a country is running a government budget surplus, why is (T - G) on the left side of the saving-investment identity?
Why are inflationary dangers lower in the high-income economies than in low-income and middle-income economies?
Would you usually expect GDP as measured by what is demanded to be greater than GDP measured by what is supplied, or the reverse?
Many financial analysts and economists eagerly await the press releases for the reports on the home price index and consumer confidence index. What would be the effects of a negative report on both of these? What about a positive report?
As technological change makes us more sedentary and food costs increase, obesity is likely. What factors do you think may limit obesity?
Exercise D25 What role does government play in stabilizing the economy and what are the tradeoffs that must be considered?

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