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Macro discussion questions

1. Given the demand for and the supply of a commodity that you yourself consume on a regular basis, i.e., I might choose coffee, what price will be the equilibrium price of this commodity? Explain why this price will tend to prevail in the market and why higher (lower) prices, if the do exist temporarily, will tend to fall (rise). Provide an example. 20 Possible Points. Provide references in APA format.

2. Explain the fiscal policies that would be advocated during a recession and during a period of inflation by those who (a) wish to expand the public sector and (b) wish to contract the size of government. Give an example. Then, assuming you are the President of the US today what policies would you implement and why? 20 Possible Points. Provide references in APA format.

3. Explain how the Board of Governors and the Federal Reserve Banks can influence income, output, employment, and the price level. In your explanation, employ the following concepts: reserves, excess reserves, the supply of money, the availability of bank credit and the rate of interest. Then tell us what if any of these tools the fed is implementing presently and why or why not? Provide an example. 20 Possible Points. Provide references in APA format.

4. What types of events cause the exchange rate for a foreign currency to appreciate or to depreciate? How will each event affect the exchange rate for a foreign currency and for a nation's own currency? Give current examples along with your explanation. 20 Possible Points. Provide references in APA format.

5. Explain how public interest regulation can lead to increased costs and economic inefficiency as it is practiced by US commissions and agencies (our Government). Using your research skills give an example to supplement your response. 20 Possible points. Provide references in APA format.

Solution Preview

1. The equilibrium price is the one which establishes the quantity buyers are willing to support. Sellers are always will to produce more of a good at a higher price. But buyers are constrained by their incomes and the need to purchase other goods as well. If a coffee producer has a large crop and offers a great deal of coffee, buyers who can pay the least will offer him a low price. He will accept this price so that his coffee isn't wasted. The next year, however, he will want to reduce the amount of coffee he produces, because he was forced to sell for such a low value. If he produces a small crop, and sets a high price, the wealthiest buyers will pay it and exhaust his supply. He may realize that he could make a profit by producing a crop somewhere in between these values. The process will continue until he produces a crop of exactly the right size - when it's gone, so are all the buyers who were willing to pay the price he wanted. Any other price will cause him to produce more, driving prices down, or to produce less, causing prices to rise.

2. To expand the economy, the government need to increase ...

Solution Summary

Exchange rate, federal reserve, fiscal policy, and equilibrium price determination