Economic questions Essay

1. It has to do with game theory. In the pris mavinrs dilemma, two suspects atomic number 18 taken by the police and to each one told sepa pass judgmently that they can gain their freedom by testifying against each other. If neither testifies, they each forget serve a six months sentence. If one testifies the other stays silent, the one will go free and the other will serve 10 yrs. If both testify because both will serve 5 yrs. The best thing is for both to be silent, merely the more(prenominal) likely scenario is that each, fearful of a long sentence, bails on the other and nobody wins. In frugals it is the investors hoping to sit down the high flyers into the New Year the best outcome is for nobody to sell. Most years, that is how it works and year revoke rallies leave everyone satisfied.2. Economic theory. Through regulation is the best way market failure or externalities argon dealt with when they are harmful to society. Externality is an economic side effect. They are the costs or emoluments that come from economic activities that affect others than the individuals that re engaged in the economic activities. Some solutions are negative- measurees, positive-subsidy.3. Sources of income in a capitalist scrimping would be their property rights that entitle them to earn a profit for the use of their capital as risk in some form of economic activity. They would be related through tote by human capital. The knowledge and skill acquired by labor through education and labor.4. The rate is determined by a percentage of its turnover or sales.5. Investment is something investors decide how much they will spend on new enthronisation. Example Producers have to decide whether to replace used up or obsolete machinery, whether to gallop production these costs will become an investment that in turn should make them money. There are four principal determinants of autonomous investment, the level of technology, rate of interest, expectation of future economi c addition and the rate of capacity utilization.6. With an equilibrium price. The price that equates quantity involveed to quality supplied. If any disturbance from that price occurs, excess demand or excess put out emerges to drive price back to equilibrium.7. The classical view of how our economy behaves is this If the economy were left on its own without the interference of government or the Fed. It would move towards an equilibrium rate of growth that would produce with only minor interruptions, full employment without inflation. This hands off rests upon two simple propositions active market, one that all markets are basically competitive and two, all prices are flexible upward and descending(prenominal) approaching equilibrium. Unemployment is only a temporary condition caused by wage rates climbing preceding(prenominal) the equilibrium rate. A shift in the extraction curves is the economys rate of unemployment and rate of inflation.8. Supply-side economists accentuate the importance of reducing tax rates. They accept the Keynesian idea that overturn tax rates will increase letr demand, but they believe a more important consequence is the added incentive it provides suppliers. For example lower corporate tax rates increase after tax profit, which induces suppliers to increase core supply. Lower income tax rates encourage more people to work longer, adding as well to aggregate supply.9. Savings mechanically converts to investment so that investment induced growth is dependent on saving.10. The division of labor into specialise activities that allow individuals to be more productive. The idea that labor productivity is a function of the course of labor specialization.11. Upward sloping trend cutting through the cycle traces the economys output public presentation over the course of a business cycle, metric either from recession to recession or from prosperity to prosperity. The upward sloping character of the trend line signifies economic gr owth.12. Every economy, whatever its level of interior(a) income, includes people earning different incomes. Knowing someones absolute income tells us little about that souls income status.13. Consumption spending is rooted in Status. High income people not only consume more goods and services than others, but also set consumption standards for everyone else.14. Aggregate supply is the total supply of goods and services that all firms in the national economy are willing to offer at vary price levels. Aggregate demand is the total quantity demanded of these goods and services by households, firms, foreigners, and government at those vary price levels. Macroequilibrium is try when aggregate supply equals aggregate demand.15. Consumption spending has tended to be more steadfast than investment spending in the past. MPC can be counted on to remain pretty much unchanged. supreme consumption is hardly likely to change. Investment spending is considered volatile. Economists identify changes in aggregate expenditure as the key to understanding why national income changes. Changes in investment have highly magnified do on national income. The income by which income changes as a result of a change in aggregate expenditure is called income multiplier.16. The economys output or gross domestic product is the total value, measured in current market prices, of all final goods and services produced in the economy during a abandoned year.17. One solution is to combine wage and price controls with a Keynesian style job creating policy. stabilization policy is one option.18. Four principle factors contributing to a nations economic growth, the size of the labor force, the degree of labor specialization, or the division of labor, the size of its capital stock and the level of its technology. Savings automatically converts to investment so that investment induced growth is dependent on savings.19. Demand deposits are only half of a banks business. Loans are the other. T he bank makes a profit only on the loans it provides, not on it deposits. Borrowers benefit from inflation where lenders, where as lenders lose money.20. Through the circular fall down model, how the economys resources, money, goods and services flow between households and firms through resource and product market.21. Economies with negative balances on current account will kick downstairs their exchange rate falling. And unless these rates are propped up by government intervention, they will fall to ascendent the currency outflows exist the exchange rate will keep falling. Eventually the rate will reach the level appropriate to a zero balance on current account. It takes only time. He would take we were habitual borrows.22. They are the what is and what it should be23. Nothing because the infrastructure is what an economys ability for development depends upon. such(prenominal) as with education to educate people involves not only the task of acquiring compliance but the funds n eeded to build the school and staff them.