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1. Most countries, including the United States, import substantial amounts of goods and services from other countries. Yet the chapter says that a nation can enjoy a high standard of living only if it can produce a large quantity of goods and services itself. Can you reconcile these two facts?

2. Suppose that society decided to reduce consumption and increase investment.

a. How would this change affect economic growth?

b. What groups in society would benefit from this change that groups might be hurt?

3. Societies choose what share of their resources to devote to consumption and what share to devote to investment. Some of these decisions involve private spending; others involve government spending.

a. Describe some forms of private spending that represent consumption and some forms that represent investment. The national income accounts include tuition as a part of consumer spending. In your opinion, are the resources you devote to your education a form of consumption or a form of investment?

b. Describe some forms of government spending that represent consumption and some forms that represent investment. In your opinion, should we view government spending on health programs as a form of consumption or investment? Would you distinguish between health programs for the young and health programs for the elderly?

4. What is the opportunity cost of investing in capital? Do you think a country can “over invest in capital? What is the opportunity cost of investing in human capital? Do you think a country can over invest” in human capital? Explain.

5. Suppose that a U.S. firm builds a factory in Malaysia.

a. What sort of foreign investment would this represent?

b. What would be the effect of this investment on GDP in Malaysia? Would the effect on Malaysian GNP be larger or smaller?

6. In the 1980s, Japanese investors made significant direct and portfolio investments in the United States. At the time, many Americans were unhappy that this investment was occurring.

a. In what way was it better for the United States to receive this Japanese investment than not to receive it?

b. In what way would it have been better still for Americans to have made this investment?

7. In the countries of South Asia in 1992, only 56 young women were enrolled in secondary school for every 100 young men. Describe several ways in which greater educational opportunities for young women could lead to faster economic growth in these countries.

8. International data show a positive correlation between income per person and the health of the population.

a. Explain how higher income might cause better health outcomes.

b. Explain how better health outcomes might cause higher income.

c. How might the relative importance of your two hypotheses be relevant for public policy?

9. International data show a positive correlation between political stability and economic growth.

a. Through what mechanism could political stability lead to strong economic growth?

b. Through what mechanism could strong economic growth lead to political stability.

10. From 1950 to 2000, manufacturing employment as a percentage of total.employment in  U.S. economy fell from 28 -percent to 13•percent. At the same time, manufacturing output experienced slightly more rapid-growth than the overall economy.

a. What do these’ facts say about growth in labor productivity (defined as output per worker) .in manufacturing.

b. In your opinion, should policymakers be concerned about the decline in the share of manufacturing  employment? Explain.

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