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Shifts in demand curves

1. Draw a demand curve. What is the relationship of price to demand?
Draw a supply curve. What is the relationship of price to supply?
Illustrate equilibrium of supply and demand with a graph. What is equilibrium?

Show a shift in demand on your graph.
What causes a change in demand?
What causes a shift in demand?

Provide two uses that the S/D/P model provides to a business.

2. Define Fiscal policy.
What are the two components of fiscal policy?
What actions would the government take with these two components to expand the economy?
What would be the most likely affect on your business with these actions?

3. Define Monetary policy.
What are the three components of monetary policy?
What actions would the government take with these three components to contract the economy?
What would be the most likely affect on your business with these actions?

4. Would you buy or sell the US dollar based on the following news.
Expectations of higher interest rates B S
A loosening of US Monetary Policy B S
Lower inflation predictions B S
An increase in US income B S
A reduction in US prices B S

You are CEO of a medical company in the US. You sell 2 machines to France, at $100,000 per unit.
At the time of the sale the dollar to Euro is $1.00 = 1.05 Euros or 1 Euro = .95. By the time the machines are delivered the values have changed to $1.00 to $1.20 or .80
Did you make money on this transaction? If so, how much? Company does not hedge.
Show work.

5. A budget deficit would most likely indicate a growing/contracting economy
A budget surplus would most likely indicate a growing/contracting economy.
Explain your choice for each answer. Twenty-five or less words each.

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1. See attached file. Note that demand decreases with increasing price. Note that supply increases with price. Equilibrium is the point where the supply and demand curves meet. The red line indicates a new demand curve. Demand is shifted outward by things such as an increase in income or population. The green curve indicates an expansion of supply. Supply curves shift outward when technology improves or new resources are discovered, which lowers the price of inputs. The supply curve would also shift in response to expectations of the sellers, a change in the number of sellers, or a change in the prices of other goods. Likewise, the demand curve can shift because of changes in expectations or in the prices of other goods.
Using this model a business can see how much is sales might increase if it dropped its price. It may also see how its sales might change due to an expanding economy (i.e. an outward shift in the demand curve).

2. Fiscal policy is a tool used by the federal government to regulate the economy. It consists of ...

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