hdjvd,mv,j
TUTORIAL 1
Introduction
PROBLEMS AND APPLICATIONS
(Chapter 1)
14. If Americans save more and it leads to more spending on factories, there will be an increase in production and productivity, because the same number of workers will have more equipment to work with. The benefits from higher productivity will go to both the workers, who will get paid more because they are producing more, and the factory owners, who will get a return on their investments. There is no such thing as a free lunch, however, because when people save more, they are giving up spending. They get higher incomes at the cost of buying fewer goods.
(Chapter 2)
4. a. A: 40 lawns mowed; 0 washed cars B: 0 lawns mowed, 40 washed cars C: 20 lawns mowed; 20 washed cars D: 25 lawns mowed; 25 washed cars
Figure 8
b. The production possibilities frontier is shown in Figure 8. Points A, B, and D are on the frontier, while point C is inside the frontier.
c. Larry is equally productive at both tasks. Moe is more productive at washing cars, while Curly is more productive at mowing lawns.
d. Allocation C is inefficient. More washed cars and mowed lawns can be produced by simply reallocating the time of the three individuals.
6 a The statement that society faces a short-term trade-off between inflation and unemployment is a positive statement. It deals with how the economy is, not how it should be. Since economists have examined data and found that there’s a short-term negative relationship between inflation and unemployment, the statement is a fact, therefore it is a positive statement. b The statement that a reduction in the rate of growth of money will reduce the rate of inflation is a positive statement. Economists have found that money growth and inflation are very closely related. The statement tells how the world is, and so it is a positive statement. c The statement that the Reserve Bank should reduce the rate of growth of money is a normative statement. It states
Introduction
PROBLEMS AND APPLICATIONS
(Chapter 1)
14. If Americans save more and it leads to more spending on factories, there will be an increase in production and productivity, because the same number of workers will have more equipment to work with. The benefits from higher productivity will go to both the workers, who will get paid more because they are producing more, and the factory owners, who will get a return on their investments. There is no such thing as a free lunch, however, because when people save more, they are giving up spending. They get higher incomes at the cost of buying fewer goods.
(Chapter 2)
4. a. A: 40 lawns mowed; 0 washed cars B: 0 lawns mowed, 40 washed cars C: 20 lawns mowed; 20 washed cars D: 25 lawns mowed; 25 washed cars
Figure 8
b. The production possibilities frontier is shown in Figure 8. Points A, B, and D are on the frontier, while point C is inside the frontier.
c. Larry is equally productive at both tasks. Moe is more productive at washing cars, while Curly is more productive at mowing lawns.
d. Allocation C is inefficient. More washed cars and mowed lawns can be produced by simply reallocating the time of the three individuals.
6 a The statement that society faces a short-term trade-off between inflation and unemployment is a positive statement. It deals with how the economy is, not how it should be. Since economists have examined data and found that there’s a short-term negative relationship between inflation and unemployment, the statement is a fact, therefore it is a positive statement. b The statement that a reduction in the rate of growth of money will reduce the rate of inflation is a positive statement. Economists have found that money growth and inflation are very closely related. The statement tells how the world is, and so it is a positive statement. c The statement that the Reserve Bank should reduce the rate of growth of money is a normative statement. It states