INTERNATIONAL ECONOMICS Mai Essay Example

  • Category:
    Business
  • Document type:
    Assignment
  • Level:
    College
  • Page:
    1
  • Words:
    663

C=$150+0.8YD.

0

INTERNATIONAL ECONOMICS MaiINTERNATIONAL ECONOMICS Mai 1INTERNATIONAL ECONOMICS Mai 2

INTERNATIONAL ECONOMICS Mai 3INTERNATIONAL ECONOMICS Mai 41000 x

INTERNATIONAL ECONOMICS Mai 5INTERNATIONAL ECONOMICS Mai 6

INTERNATIONAL ECONOMICS Mai 7INTERNATIONAL ECONOMICS Mai 8800 x

INTERNATIONAL ECONOMICS Mai 9x

INTERNATIONAL ECONOMICS Mai 10600

INTERNATIONAL ECONOMICS Mai 11x

INTERNATIONAL ECONOMICS Mai 12INTERNATIONAL ECONOMICS Mai 13400

INTERNATIONAL ECONOMICS Mai 14x

INTERNATIONAL ECONOMICS Mai 15200 x

INTERNATIONAL ECONOMICS Mai 16

0 200 400 600 800 1000

Disposable income Point B

Point A is the break-even point, at this point the level of consumption is equal to the income level. Any income beyond this point is considered to be savings.

C= 150 + 0. 8 YD

YD = 200 + 750

C= 150 + 0.8( 950)

$910 — $750= $160

Consumption at break even point was $ 750 billion, however due to an increase in income by $ 200, the consumption level increases by $ 160 billion, this is in reference to the math given above

2. Fiscal and monetary tools are used to fix the macro economy.How might a tax cut affect both agregate demand and agregate supply, a tax cut is a reduction tax on commmodity, hypothetically, a tax reduction will result to an increase in the disposable income, the aggregate demand will increase in the short run, agregate supply increases in the longrun because the tax cut gives both consumers and producers an incentive to engage in trade.

INTERNATIONAL ECONOMICS Mai 17INTERNATIONAL ECONOMICS Mai 18AS1 AS2

INTERNATIONAL ECONOMICS Mai 19INTERNATIONAL ECONOMICS Mai 20. price (P) E- equilibrium

As –Agregate supply

INTERNATIONAL ECONOMICS Mai 21A D1 AD- Agregate demand

INTERNATIONAL ECONOMICS Mai 22P1 E1

INTERNATIONAL ECONOMICS Mai 23INTERNATIONAL ECONOMICS Mai 24INTERNATIONAL ECONOMICS Mai 25PO E income effect

INTERNATIONAL ECONOMICS Mai 26INTERNATIONAL ECONOMICS Mai 27

INTERNATIONAL ECONOMICS Mai 28Substitition

qo q1 quantity(q)

With reference to the graph, a tax cut tends to increase a consumers income, therefore giving the consumer the ability to buy more commodities. The overall demand for products increases, hence the demand curve shifts from D1 to D2

A decrease in taxes, reduces the costs of raw materials, therefore producers can supply more products to the market with the same level of income as he had before the tax cut, therefore , the supply curve will shift to the right from S1 to S2.

There is a substitution and income effect as a result of the tax cut, the substitiution effect on the graph is indicated by the large change caused by the shift in agregate demand from D1 to D2 .An income effect is indicated by the slight change shift in the supply curve.This is the longrun effect of a reduction in tax.

3. Steps that can can stiumilate economic growth.

Provision of subsidies to suppliers.

The government can inject money into the economy by giving subsidies to some sectors of the economy e.g subsidies on agricultural inputs . By providing subsidy, producers will be producing commodities at a lower price, they will be able to supply their products at a lower price, for the consumers to buy. The low priced products will increase the products demand .When subsidy is provided suppliers can maximize their level of production, therefore hiring more labour , more money circulates in the economy when subsidies is provided. Point x is the position at which producers are able to maximize their out put while at price w.

INTERNATIONAL ECONOMICS Mai 29INTERNATIONAL ECONOMICS Mai 30AS1 AS2

INTERNATIONAL ECONOMICS Mai 31INTERNATIONAL ECONOMICS Mai 32. price (P)

INTERNATIONAL ECONOMICS Mai 33A D1

INTERNATIONAL ECONOMICS Mai 34INTERNATIONAL ECONOMICS Mai 35P1 E1

INTERNATIONAL ECONOMICS Mai 36PO E

INTERNATIONAL ECONOMICS Mai 37INTERNATIONAL ECONOMICS Mai 38w x

INTERNATIONAL ECONOMICS Mai 39

qo q1 quantity(q)

Government spending.

Government spending can either be an expansionary fisical policy or a contractory policy. Inorder to stiumilate growth, the government can increase its expenditure on the economy. As a result the agregate demand of goods and servises, therefore the disposable income of consumers will increase, hence they will spend more money in purchasing these goods and services, more money will be circulating in the economy, economic growth will take place when more money is flowing in the economy.

INTERNATIONAL ECONOMICS Mai 40

INTERNATIONAL ECONOMICS Mai 41price(p) AS

INTERNATIONAL ECONOMICS Mai 42

INTERNATIONAL ECONOMICS Mai 43

INTERNATIONAL ECONOMICS Mai 44INTERNATIONAL ECONOMICS Mai 45P1

INTERNATIONAL ECONOMICS Mai 46INTERNATIONAL ECONOMICS Mai 47Po

INTERNATIONAL ECONOMICS Mai 48

Y – income

AD- Agregate demand

AS- Agregate supply

Tax reduction.

A reduction in tax increases the consumers disposable income, it also gives producers the incentive to produce more commodities since their expenditure on inputs is lower. The agregate demand for products will increase as well as the aggregate supply of commodities in the market will increase, as a result more money will flow into the economy thus stiumilating economic growth.

INTERNATIONAL ECONOMICS Mai 49INTERNATIONAL ECONOMICS Mai 50AS1 AS2

INTERNATIONAL ECONOMICS Mai 51INTERNATIONAL ECONOMICS Mai 52. price (P)

INTERNATIONAL ECONOMICS Mai 53A D1

INTERNATIONAL ECONOMICS Mai 54P1 E1

INTERNATIONAL ECONOMICS Mai 55INTERNATIONAL ECONOMICS Mai 56PO

INTERNATIONAL ECONOMICS Mai 57

INTERNATIONAL ECONOMICS Mai 58

qo q1 quantity(q)

Y – income

AD- Agregate demand

AS- Agregate supply