National Economic Trends

Answer the following questions in a Microsoft Word document and upload to submit. Note that this assignment requires you to express your thoughts and analyses in full sentences and paragraphs (unlike the Quizzes where most questions are multiple-choice).

  1. One core concept in economics is opportunity cost. Consider your decision to pursue an MBA degree.
    1. What are the components that make up the total opportunity cost of this decision to you?
    2. What are your expected benefits of this decision?
  2. Apply marginal cost-marginal benefit analysis in the following brief case. Your company has already invested $5 million in developing a new product, but the project is not quite finished yet. At a recent meeting, your marketing staff reported that the introduction of competing products has reduced the expected sales of your new product to $3 million. If it would cost $1 million to finish development and make the product, should you go ahead and do so? Why or why not? (Assume that all figures given are present-values of dollar-streams over the whole life of the project/product.)
  3. Two of the four groups of economic resources are human: labor and entrepreneur. Please read the article “Company Man or Free Agent? .” (BusinessWeek, Feb 11 ’07, p. 106).
    1. Which one is labor, and which one is the entrepreneur, in the title of the article? Explain your answer briefly.
    2. In general, what are the opportunity costs of being an entrepreneur? What are the benefits?
  4. You have learned about “economic investment” in connection with resources and the PPC.
    1. Describe a situation where a freezer is considered a “consumer good”. Describe another situation where a freezer would be correctly considered a “capital good”.
    2. What is the basic distinction between “consumer spending” and ”investment spending”?
    3. When people put large sums of money into mutual funds through their brokers, is that an act of “economic investment” or not? Explain your answer.
  5. You’ve learned about economic systems in Chapter 2. The heated debate between Republicans and Democrats is largely about whether we should have our government expand its role in our economy, or shrink it. Read the article “The Environment Is About Economics, Too .” (Federal Reserve Bank of St Louis publication , Liber8, October 2010). Understand the rationale for government regulation in some areas, the tools of government regulation, and the cost-benefit analysis of government regulation.
    1. Describe a negative externality related to cigarette consumption (or smoking).
    2. Describe how the “free rider problem” might appear in the context of flu-vaccination.
    3. What are some of the opportunity-cost elements of the CAFE regulations (or fuel economy standards) for cars and light trucks? And what are the expected benefits?
    4. There’s a long-running debate in government on whether or not we should allow oil-drilling and mining in the Arctic National Wildlife Refuge. If you’re not familiar with this at all, please google it and get a broad idea of what the debate is about. Reflect on this issue, and suppose that you’re asked to draw a production possibilities curve (PPC) to illustrate clearly the conflict between the two sides of the debate. What would you put on the two axes of the PPC? Briefly explain where each camp in the debate would want to be on your PPC.
  6. One good source of summary economic data on various nations is the CIA website. Please visit the site, and click on the “World Factbook” link. Use the scroll-down menu in the factbook page to look at data on China. Once on the China page, click on the “Economy” button and read the summary description of China’s economy.
    1. Apply the “economic system” concepts of Chapter 1: China has been shifting from what economic system to what system?
    2. Cite the phrases or sentences in the CIA’s summary that indicates to you that there is still a significant element of socialism in China.
  7. One convenient source of up-to-date U.S. macroeconomic data is the Federal Reserve Bank of St. Louis. It has a monthly publication, National Economic Trends, which summarizes these data. One important graph that this publication always presents in front (either page 4 or 5) is one on the movements of Real GDP, as shown below. Study the graph and its title carefully; note that it shows the annual %-change in U.S. Real GDP (GDP measures total production). Focus on the portions of the graph for 1993 and 2000, where the graph declines. Does this mean that real GDP fell in 1993 and in 2000? Explain your answer clearly.

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