Written Assignment
Written Assignment 4
Answer all of the following questions. Title your assignment "Written Assignment 4," unless your mentor directs otherwise. This assignment covers text chapters 18 through 23. 1. Explain the relationship among savings, investment, and net capital outflow.
Savings are equal to domestic investment + net capital outflow. In an open economy, both net capital outflow ( which is the purchase of foreign assets by domestic investors minus the purchase of domestic investments by foreigners) and savings and domestic investments are both ways of saving, and are both used to get the full picture of total saving. 2. Describe the economic logic behind the theory of purchasing-power parity (PPP). What factors might prevent PPP …show more content…
Wages are slow to adjust and may not be able to be changed. Steady wages can be harmful to a company and cause them to have lower production levels. Nominal wages are based on expected prices and are slow to respond when the actual prices ends up being different.
Sticky price. Prices for some goods and services also are “sticky” and take time to adjust. This is due in part to “menu costs”, or the administrative costs incurred by changing the prices of a product in a firm.
Misperceptions. Different businesses read the market different ways. A misperception in the trend of the market can cause suppliers to supply more product, even when the demand is not truly there. 6. What might shift the aggregate-demand curve to the left? Use the model of aggregate demand and aggregate supply to trace through the short-run and long-run effects of such a shift on output and the price level. Use the following diagram to help explain your answer.
Point A is the short-run equilibrium point whereas Point C is the long run equilibrium point. Higher prices lower costs and shift demand to the left (lower). If for say, the current market price of this item is at Point C, and the market price drops, the demand for the item will rise, shifting the curve to the
Answer all of the following questions. Title your assignment "Written Assignment 4," unless your mentor directs otherwise. This assignment covers text chapters 18 through 23. 1. Explain the relationship among savings, investment, and net capital outflow.
Savings are equal to domestic investment + net capital outflow. In an open economy, both net capital outflow ( which is the purchase of foreign assets by domestic investors minus the purchase of domestic investments by foreigners) and savings and domestic investments are both ways of saving, and are both used to get the full picture of total saving. 2. Describe the economic logic behind the theory of purchasing-power parity (PPP). What factors might prevent PPP …show more content…
Wages are slow to adjust and may not be able to be changed. Steady wages can be harmful to a company and cause them to have lower production levels. Nominal wages are based on expected prices and are slow to respond when the actual prices ends up being different.
Sticky price. Prices for some goods and services also are “sticky” and take time to adjust. This is due in part to “menu costs”, or the administrative costs incurred by changing the prices of a product in a firm.
Misperceptions. Different businesses read the market different ways. A misperception in the trend of the market can cause suppliers to supply more product, even when the demand is not truly there. 6. What might shift the aggregate-demand curve to the left? Use the model of aggregate demand and aggregate supply to trace through the short-run and long-run effects of such a shift on output and the price level. Use the following diagram to help explain your answer.
Point A is the short-run equilibrium point whereas Point C is the long run equilibrium point. Higher prices lower costs and shift demand to the left (lower). If for say, the current market price of this item is at Point C, and the market price drops, the demand for the item will rise, shifting the curve to the