Recession: Every economy faces different business cycle at different point of time. Recession is one of such business cycle. During recession, there is huge unemployment and fall in production of goods and services. Recession slows down the business activities. The main reason for such phenomenon is the lack of demand and low investment level. When the recession is for longer duration it is known as depression. Causes of Recession: Below given are the causes of recession: Rise in oil price : When the price of oil increases the prices of every commodities rises due to increase in input cost . Fall in House price: When there is fall in prices of house the wealth of household decreases compelling them to spend less on consumption of goods Loss in consumer confidence: This leads to decrease in consumption level as people think that the economy is going through bad condition. Credit Crunch: It is the situation when people do not have money to invest or consume as the loans are not easily accessible. Rise in Interest Rate: It lowers the amount of investment in an economy which results into low output and employment level. To explain: Reason for rise in gas prices during recession and fall in prices after recession.

Question

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Answer 1

Question

Chapter 12, Problem 1QFT

To determine

Concept Introduction:

Recession: Every economy faces different business cycle at different point of time. Recession is one of such business cycle. During recession, there is huge unemployment and fall in production of goods and services. Recession slows down the business activities.

The main reason for such phenomenon is the lack of demand and low investment level. When the recession is for longer duration it is known as depression.

Causes of Recession: Below given are the causes of recession:

Rise in oil price: When the price of oil increases the prices of every commodities rises due to increase in input cost.

Fall in House price: When there is fall in prices of house the wealth of household decreases compelling them to spend less on consumption of goods

Loss in consumer confidence: This leads to decrease in consumption level as people think that the economy is going through bad condition.

Credit Crunch: It is the situation when people do not have money to invest or consume as the loans are not easily accessible.

Rise in Interest Rate: It lowers the amount of investment in an economy which results into low output and employment level.

To explain:

Reason for rise in gas prices during recession and fall in prices after recession.

Expert Solution & Answer

Explanation of Solution

Gas price rose during the recession of 1970 due to increase in demand for fuel efficient car and the price decrease after great recession because of huge unemployment that reduced the income level.

During 1970, due to increase in the price of oil people started to demand the substitute goods like fuel efficient car. As a result the demand for such car increased tremendously.

This led to increase in the demand for fuel because increase in the average of the car was not more in comparison to demand.

But the price started to fall after great depression because the recession has caused huge unemployment in the economy. This led to fall in demand for cars and as a result for gas oil.

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Consider an economy that exhibits both population growth (L grows at rate n) and technological progress (A grows at rate a) described by the production function, Y = F(K, AL) = Ka (AL)¹-α Here K is capital and Y is output. (a) Show that this production function exhibits constant returns to scale. [2 marks] (b) What is the per-effective-worker production function, y = f(k), (where y = Y/AL k K/AL)? (Show your working.) [2 marks] (c) Find expressions for the steady-state capital-output ratio, capital stock per effective worker, and output per effective worker, as a function of the saving rate (s), the depreciation rate (8), the population growth rate (n), the rate of technological progress (a), and the coefficient a. (You may assume the condition that capital per effective worker evolves according to Ak = sf (k) - (a+n+8)k.) [5 marks] (d) Show that at the Golden Rule steady state the saving rate for this economy is equal to the parameter a. [6 marks]

A firm faces the following production function, Y = AKα L¹-a (1) Here Y is output, K is capital, L is fixed labour, and A is a measure of technology. The firm uses an optimal amount of capital determined by the condition, MPK = r +8 (2) Where MPK is the marginal productivity of capital, r is the real interest rate, and ♪ is the depreciation rate. (a) Using equations (1) and (2) find an expression for K*, the optimal amount of capital the firm should use. [3 marks] (b) Referring to your result from part (a), comment on what happens to K* when each of the following variables change (holding other variables constant), (i) The measure of technology (A) falls (ii) The depreciation rate (8) increases (iii) The real interest rate (r) increases [2 marks] [2 marks] [2 marks] [Hint: For each of parts (i)-(iii) you are being asked to comment on what happens to K* if just the variable mentioned in the question part changes. Your answer should state whether K* increases, decreases, or stays the…

In the week-4 materials, when deriving labour supply, we assumed that the substitution effect dominated the income effect. What impact would there be on labour supply if this was not the case? Briefly investigate how such a change could theoretically affect the imposition of a minimum wage above the market clearing wage. (Your answer is likely to benefit from diagrammatic support.)

Answer 2

Question

Chapter 12, Problem 1QFT

To determine

Concept Introduction:

Recession: Every economy faces different business cycle at different point of time. Recession is one of such business cycle. During recession, there is huge unemployment and fall in production of goods and services. Recession slows down the business activities.

The main reason for such phenomenon is the lack of demand and low investment level. When the recession is for longer duration it is known as depression.

Causes of Recession: Below given are the causes of recession:

Rise in oil price: When the price of oil increases the prices of every commodities rises due to increase in input cost.

Fall in House price: When there is fall in prices of house the wealth of household decreases compelling them to spend less on consumption of goods

Loss in consumer confidence: This leads to decrease in consumption level as people think that the economy is going through bad condition.

Credit Crunch: It is the situation when people do not have money to invest or consume as the loans are not easily accessible.

Rise in Interest Rate: It lowers the amount of investment in an economy which results into low output and employment level.

To explain:

Reason for rise in gas prices during recession and fall in prices after recession.

Expert Solution & Answer

Explanation of Solution

Gas price rose during the recession of 1970 due to increase in demand for fuel efficient car and the price decrease after great recession because of huge unemployment that reduced the income level.

During 1970, due to increase in the price of oil people started to demand the substitute goods like fuel efficient car. As a result the demand for such car increased tremendously.

This led to increase in the demand for fuel because increase in the average of the car was not more in comparison to demand.

But the price started to fall after great depression because the recession has caused huge unemployment in the economy. This led to fall in demand for cars and as a result for gas oil.

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Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 3

Question

Chapter 12, Problem 1QFT

To determine

Concept Introduction:

Recession: Every economy faces different business cycle at different point of time. Recession is one of such business cycle. During recession, there is huge unemployment and fall in production of goods and services. Recession slows down the business activities.

The main reason for such phenomenon is the lack of demand and low investment level. When the recession is for longer duration it is known as depression.

Causes of Recession: Below given are the causes of recession:

Rise in oil price: When the price of oil increases the prices of every commodities rises due to increase in input cost.

Fall in House price: When there is fall in prices of house the wealth of household decreases compelling them to spend less on consumption of goods

Loss in consumer confidence: This leads to decrease in consumption level as people think that the economy is going through bad condition.

Credit Crunch: It is the situation when people do not have money to invest or consume as the loans are not easily accessible.

Rise in Interest Rate: It lowers the amount of investment in an economy which results into low output and employment level.

To explain:

Reason for rise in gas prices during recession and fall in prices after recession.

Expert Solution & Answer

Explanation of Solution

Gas price rose during the recession of 1970 due to increase in demand for fuel efficient car and the price decrease after great recession because of huge unemployment that reduced the income level.

During 1970, due to increase in the price of oil people started to demand the substitute goods like fuel efficient car. As a result the demand for such car increased tremendously.

This led to increase in the demand for fuel because increase in the average of the car was not more in comparison to demand.

But the price started to fall after great depression because the recession has caused huge unemployment in the economy. This led to fall in demand for cars and as a result for gas oil.

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Answer 4

Question

Chapter 12, Problem 1QFT

To determine

Concept Introduction:

Recession: Every economy faces different business cycle at different point of time. Recession is one of such business cycle. During recession, there is huge unemployment and fall in production of goods and services. Recession slows down the business activities.

The main reason for such phenomenon is the lack of demand and low investment level. When the recession is for longer duration it is known as depression.

Causes of Recession: Below given are the causes of recession:

Rise in oil price: When the price of oil increases the prices of every commodities rises due to increase in input cost.

Fall in House price: When there is fall in prices of house the wealth of household decreases compelling them to spend less on consumption of goods

Loss in consumer confidence: This leads to decrease in consumption level as people think that the economy is going through bad condition.

Credit Crunch: It is the situation when people do not have money to invest or consume as the loans are not easily accessible.

Rise in Interest Rate: It lowers the amount of investment in an economy which results into low output and employment level.

To explain:

Reason for rise in gas prices during recession and fall in prices after recession.

Expert Solution & Answer

Explanation of Solution

Gas price rose during the recession of 1970 due to increase in demand for fuel efficient car and the price decrease after great recession because of huge unemployment that reduced the income level.

During 1970, due to increase in the price of oil people started to demand the substitute goods like fuel efficient car. As a result the demand for such car increased tremendously.

This led to increase in the demand for fuel because increase in the average of the car was not more in comparison to demand.

But the price started to fall after great depression because the recession has caused huge unemployment in the economy. This led to fall in demand for cars and as a result for gas oil.

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Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 5

Chapter 12, Problem 1QFT

To determine

Concept Introduction:

Recession: Every economy faces different business cycle at different point of time. Recession is one of such business cycle. During recession, there is huge unemployment and fall in production of goods and services. Recession slows down the business activities.

The main reason for such phenomenon is the lack of demand and low investment level. When the recession is for longer duration it is known as depression.

Causes of Recession: Below given are the causes of recession:

Rise in oil price: When the price of oil increases the prices of every commodities rises due to increase in input cost.

Fall in House price: When there is fall in prices of house the wealth of household decreases compelling them to spend less on consumption of goods

Loss in consumer confidence: This leads to decrease in consumption level as people think that the economy is going through bad condition.

Credit Crunch: It is the situation when people do not have money to invest or consume as the loans are not easily accessible.

Rise in Interest Rate: It lowers the amount of investment in an economy which results into low output and employment level.

To explain:

Reason for rise in gas prices during recession and fall in prices after recession.

Expert Solution & Answer

Explanation of Solution

Gas price rose during the recession of 1970 due to increase in demand for fuel efficient car and the price decrease after great recession because of huge unemployment that reduced the income level.

During 1970, due to increase in the price of oil people started to demand the substitute goods like fuel efficient car. As a result the demand for such car increased tremendously.

This led to increase in the demand for fuel because increase in the average of the car was not more in comparison to demand.

But the price started to fall after great depression because the recession has caused huge unemployment in the economy. This led to fall in demand for cars and as a result for gas oil.

Answer 6

Chapter 12, Problem 1QFT

To determine

Concept Introduction:

Recession: Every economy faces different business cycle at different point of time. Recession is one of such business cycle. During recession, there is huge unemployment and fall in production of goods and services. Recession slows down the business activities.

The main reason for such phenomenon is the lack of demand and low investment level. When the recession is for longer duration it is known as depression.

Causes of Recession: Below given are the causes of recession:

Rise in oil price: When the price of oil increases the prices of every commodities rises due to increase in input cost.

Fall in House price: When there is fall in prices of house the wealth of household decreases compelling them to spend less on consumption of goods

Loss in consumer confidence: This leads to decrease in consumption level as people think that the economy is going through bad condition.

Credit Crunch: It is the situation when people do not have money to invest or consume as the loans are not easily accessible.

Rise in Interest Rate: It lowers the amount of investment in an economy which results into low output and employment level.

To explain:

Reason for rise in gas prices during recession and fall in prices after recession.

Expert Solution & Answer

Explanation of Solution

Gas price rose during the recession of 1970 due to increase in demand for fuel efficient car and the price decrease after great recession because of huge unemployment that reduced the income level.

During 1970, due to increase in the price of oil people started to demand the substitute goods like fuel efficient car. As a result the demand for such car increased tremendously.

This led to increase in the demand for fuel because increase in the average of the car was not more in comparison to demand.

But the price started to fall after great depression because the recession has caused huge unemployment in the economy. This led to fall in demand for cars and as a result for gas oil.

Answer 7

Chapter 12, Problem 1QFT

To determine

Concept Introduction:

Recession: Every economy faces different business cycle at different point of time. Recession is one of such business cycle. During recession, there is huge unemployment and fall in production of goods and services. Recession slows down the business activities.

The main reason for such phenomenon is the lack of demand and low investment level. When the recession is for longer duration it is known as depression.

Causes of Recession: Below given are the causes of recession:

Rise in oil price: When the price of oil increases the prices of every commodities rises due to increase in input cost.

Fall in House price: When there is fall in prices of house the wealth of household decreases compelling them to spend less on consumption of goods

Loss in consumer confidence: This leads to decrease in consumption level as people think that the economy is going through bad condition.

Credit Crunch: It is the situation when people do not have money to invest or consume as the loans are not easily accessible.

Rise in Interest Rate: It lowers the amount of investment in an economy which results into low output and employment level.

To explain:

Reason for rise in gas prices during recession and fall in prices after recession.

Answer 8

Expert Solution & Answer

Explanation of Solution

Gas price rose during the recession of 1970 due to increase in demand for fuel efficient car and the price decrease after great recession because of huge unemployment that reduced the income level.

During 1970, due to increase in the price of oil people started to demand the substitute goods like fuel efficient car. As a result the demand for such car increased tremendously.

This led to increase in the demand for fuel because increase in the average of the car was not more in comparison to demand.

But the price started to fall after great depression because the recession has caused huge unemployment in the economy. This led to fall in demand for cars and as a result for gas oil.

Answer 9

Expert Solution & Answer

Answer 10

Expert Solution & Answer

Answer 11

Ch. 12 - Prob. 1QFT Ch. 12 - Prob. 2QFT Ch. 12 - Prob. 3QFT Ch. 12 - Prob. 1P Ch. 12 - Prob. 2P Ch. 12 - Prob. 3P Ch. 12 - Prob. 4P Ch. 12 - Prob. 5P Ch. 12 - Prob. 6P Ch. 12 - Prob. 7P

Explanation of Solution

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Chapter 12 Solutions