Notes, abstracts, papers, exams and problems of Economy

Fiscal Policy

Stimulus

• Purchasing more goods and services (G + N + S)
• Lowering taxes (individual income tax cut, corporate tax cut)
• Increasing income transfers

Restraint

• Decreased government spending (AD = FR = induced decrease)
• Increased taxes
• Reduced income transfers

Classical Economics

1. Supply creates its own demand
2. Excess income should be matched by an equal amount of investment by businesses
3. Interest rates, wages, and prices should be flexible
4. The market is always clear because prices would adjust through the interactions of supply and demand

Keynesian Economics

1. At macroeconomic equilibrium, the economy would experience neither full employment nor price stability
2. Even if the market's macroeconomic equilibrium were perfectly positioned, it would not last
3. Macroeconomic

Neoliberalism can be contemplated from three different points of view.

Neoliberalism as an Ideology

First, it is an ideology. Here, the student must summarize the main ideological points and compare them with the tenets of Keynesianism to understand the economic and political changes we are living today.

Neoliberalism as a Mode of Governance

Second, it is a mode of governance, that is, it is a conception about how the role of government should be. In a few words, governments have to imitate the principles and values of free markets. The most significant consequence is that governmental technologies taken from the world of business and trade are replacing the pursuit of some ideal of the ‘public good’ which characterized the Welfare State.

Neoliberalism

Different Types of Businesses

Classification by Level of Activity

Primary activity: It takes all the natural resources and makes them more useful to consumers (e.g., timber).

Secondary activity: It takes the materials provided by primary industry and processes them in order to satisfy society’s needs (e.g., process minerals). However, there are companies that are supplied by other companies from the same sector, such as assembly-line companies. If a product’s demand decreased, it would cause a domino effect on other product’s demand (e.g., construction).

Tertiary activity: It provides all the services that industry and consumers demand, with the aim to satisfy directly consumer’s needs.

Classification by Size

Turnover, capital employed, number... Continue reading "Understanding Different Types of Businesses" »

Entry Modes:

Exporting: Common first step for many manufacturing firms. Later, firms may switch to another mode.

Advantages:

• Avoids the costs of establishing local manufacturing operations
• Learning

Turnkey projects: The contractor handles every detail of the project for a foreign client, including the training of operating personnel.

Advantages:

• A way of earning economic returns from the know-how required to assemble and run a technologically complex process
• Less risky compared to FDI

Disadvantages:

• No long-term interest in the foreign country
• If the firm's process technology is a source of competitive advantage, then selling this technology through a turnkey project is also selling competitive advantage to potential and/or actual competitors

Licensing:

Limitations of Quantitative Easing and Nonconventional Monetary Policy

Zero Lower Bound and Deflation

While quantitative easing (QE) and other nonconventional policies can be employed when short-term interest rates reach the zero lower bound, they are not a cure-all. When the economy faces deflationary conditions, designing effective policies becomes challenging due to the increased uncertainty surrounding their outcomes. Additionally, nonconventional policies like QE are more complex to implement, making it harder to effectively stimulate the economy.

Reserve Demand and Federal Funds Rate

If the actual demand for reserves exceeds the estimated demand, the actual reserve demand curve will shift to the right. If the gap is significant, the demand... Continue reading "Understanding the Limitations of Quantitative Easing and Nonconventional Monetary Policy" »

1) If the economy is in recession, the CB will decrease its target for the interest rate by increasing the money supply. Another alternative is that the Gov decides to decrease taxes

2) According to the principal of monetary neutrality: In the long run the only effects of a decrease in the monetary supply is to reduce the agg price level...

3) Which of the following statements is false? According to the Solow's model, the contribution of the TFP to the GDP growth is computed as a residual, once we have subtracted the contribution physical & human capital.

4) If the nominal GDP is 1.6M, & real GD is 1.0M, the deflator is: 160

5) The nominal rate of unemployment around which the unemployment rate fluctuates is called the Natural rate of unemployment

6)

Understanding Key Concepts in International Trade

1. Trade Diversion and Trade Creation

Trade Diversion is a shift in the pattern of trade from low-cost world producers to higher-cost Custom Union or FTA members. It is often viewed as welfare-reducing for the world.

On the other hand, Trade Creation refers to the expansion in world trade that results from the formation of a preferential trade agreement.

2. Rules of Origin

Rules of Origin are the requirements that domestic producers or exporters must fulfill in order for their products to be considered as originating in a specific country and receive the benefits of tariff reductions. This measure is created to avoid trade deflection.

These rules define whether a good is eligible for duty-free treatment,... Continue reading "Understanding Trade Diversion, Rules of Origin, and Regional Trade Agreements" »

Determining Income Tax Expense

The formula to determine income tax expense is: Income before income tax expense (from the income statement) multiplied by the income tax rate.

Southern Corporation has a pretax accounting income of $575,000 and a taxable income of $560,000. The company's income tax rate is 35%. Income tax expense for the firm is: Income Tax Expense $201,250.

Discontinued Operations

The discontinued operations section of the income statement refers to the: disposal of a segment of a business.

Statement of Stockholders' Equity

The financial statement that reports the changes in all categories of equity during the period is called the: statement of stockholders' equity.

Comprehensive Income

Comprehensive income is not used to determine