1) The RGDP would increase by 250 billion dollars. You would have to find the multiplier, which is calculated by doing 1-mpc. Then you would multiply 1/1-mpc by 50 billion to get 250 billion dollars. We do this formula because people will spend only 80 percent of what they receive and by using this formula we will calculate the total addition to Real GDP.
2) If disposable income remains stable, consumption can change because of expectations of prices. If people believe that the price is going to go up in future months then people would begin to buy more of that product right now. In this case consumption would go up in this situation.
Tuesday, November 13, 2012
Tuesday, October 23, 2012
Inflation
Why is unexpected inflation a societal problem?
This is a societal problem because people will not be able to prepare for inflation and adjust the prices to loans and trades. For example, if you borrow 100 dollars from the bank, and then next year when you come back to pay the 100 dollars there is a 10 percent increase in inflation, the bank is actually losing money. In inflation, there is more money being produced, which lowers the real value of the dollar. In this case the bank would lose 10 dollars because the real value of the dollar has gone down 10 percent. This causes a lot of problems for the society because there would be disputes between people who borrow money and banks who lend the money. If inflation just rises simultaneously then it skews the prices of goods and the value of the dollar.
This is a societal problem because people will not be able to prepare for inflation and adjust the prices to loans and trades. For example, if you borrow 100 dollars from the bank, and then next year when you come back to pay the 100 dollars there is a 10 percent increase in inflation, the bank is actually losing money. In inflation, there is more money being produced, which lowers the real value of the dollar. In this case the bank would lose 10 dollars because the real value of the dollar has gone down 10 percent. This causes a lot of problems for the society because there would be disputes between people who borrow money and banks who lend the money. If inflation just rises simultaneously then it skews the prices of goods and the value of the dollar.
Tuesday, October 16, 2012
GDP
What does real GDP growth mean for you and me?
GDP is growth is the amount of revenue a country makes based on the production and consumption of goods. It is important to understand that the GDP growth can grow through the degradation of the environment so in some cases when GDP goes up it does not necessarily mean that your life is better. A growth in GDP makes people more confident in the government, but it does not show the feelings that they have for their overall wealth. It is important to understand that GDP does not take into consideration the unemployment rate, the size of the government, or the feeling that people have towards their life, rather it helps us understand how efficient and productive our economy is.
GDP is growth is the amount of revenue a country makes based on the production and consumption of goods. It is important to understand that the GDP growth can grow through the degradation of the environment so in some cases when GDP goes up it does not necessarily mean that your life is better. A growth in GDP makes people more confident in the government, but it does not show the feelings that they have for their overall wealth. It is important to understand that GDP does not take into consideration the unemployment rate, the size of the government, or the feeling that people have towards their life, rather it helps us understand how efficient and productive our economy is.
Tuesday, September 11, 2012
Incentives-Black Rhino
Why does the market for black rhinos create incentives that are different than other markets? How can these incentives be changed?
For other markets the incentive for keeping black rhinos would be to preserve tourism and have outsiders come to their land. Many of the natives still choose to kill the Rhino since it is better financially for them. This market for Black Rhino is breaking down because they are being viscously killed and no one is trying to protect them. A market is based on self interest, and self interest should help the community, but people are not looking at the consequences and are only looking for money. People have tried to change the incentives by cutting off the horn, but the natives still killed the rhino, so they did not have to chase rhinos without horns (the most expensive part of the rhino). The incentive for killing a Rhino is to make money off of it, but if the incentive was changed to creating more tourism for the country then the mass killing of Rhinos could be stopped. If the natives received a portion of the revenue generated from Tourism, and they understood that the only reason people come to their land is to see the Black Rhino then they would stop killing the Rhino because their incentive have changed.
For other markets the incentive for keeping black rhinos would be to preserve tourism and have outsiders come to their land. Many of the natives still choose to kill the Rhino since it is better financially for them. This market for Black Rhino is breaking down because they are being viscously killed and no one is trying to protect them. A market is based on self interest, and self interest should help the community, but people are not looking at the consequences and are only looking for money. People have tried to change the incentives by cutting off the horn, but the natives still killed the rhino, so they did not have to chase rhinos without horns (the most expensive part of the rhino). The incentive for killing a Rhino is to make money off of it, but if the incentive was changed to creating more tourism for the country then the mass killing of Rhinos could be stopped. If the natives received a portion of the revenue generated from Tourism, and they understood that the only reason people come to their land is to see the Black Rhino then they would stop killing the Rhino because their incentive have changed.
Thursday, September 6, 2012
Power of Markets
In his book, "Naked Economics" Charles Wheelan argues that the soviet economy failed because the government regulated everything that the individuals needed. After a while, it became impossible for the government to regulate everything. Charles also talks about what are economy is based of of individuals trying to make themselves as wealthy as possible. Basically, Individuals seek to maximize utility and thans what are free market economy is based on. An example of this is would be an individual trying to save the most money he can on appliances on a house. He wants to save money because that is a utility we need most in America. He also relates firms to individuals, because like humans firms have to make decisions on how much products to produce, and at what prices to sell them. Both humans and the firms are significant because they keep the economy. If there is no consumption by the individuals then the economy would break down, and if firms do not produce enough products, than individuals would have serious problems. This interaction is an essential part of maintaining an economy. Charles also says that are market rewards scarcity, which basically means that products that are rare are more expensive. An example of this would be Diamonds and Silver, Diamonds cost a lot more because they are very rare. He says that the market provides things that we want to buy rather than things that we need.
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