There are three questions related to U.S. economy and Production Possibility Fro
ID: 1133310 • Letter: T
Question
There are three questions related to U.S. economy and Production Possibility Frontier (PPF). If you provide some numbers to support your opinion, cite the source of reference.
a. What will be the possible impact of trade war with China in 2018 (i.e. imposed a 25% tariff on imports each other) on the U.S. real GDP in your opinion? Please state both the short-run and long-run impacts briefly. Providing a reference link (URL) to an article which supports your opinion is a plus.
b. The U.S. federal income tax reform will increase tax return in 2019. Please comment on which component of GDP (i.e. C, I, G, or XM) will be influenced the most, increase or decrease?
c. An economy uses only labor as input to produce two goods, A and B. If its production possibilities frontier (PPF) of two goods is a negative-sloped straight line, then what is the implication in opportunity costs?
Explanation / Answer
Ans (a)- The recent U.S. tariffs on chinese imports are focused on B2B goods, and the list seems to been concern for reducing the impact on consumers that could affect upcoming election results.However, the tariffs would still raise prices for consumers indirectly, due to firms passing higher production costs into final prices. From the chinese side, the new tariffs on U.S imports affect a diverse set of industries such as soybeans, vehicles, chemical and aircraft.
Until fairly recently, i didnt really think we were going to have trade war. Americas major trading partners would make cosmetic concesions- perhaps with some lucrative payoffs to Trump business on the side. The reason I expected this benign outcome wasnt that Trump would get or take good advice. Corporations have invested trillions based on the assumption that an open world trading system, a trade war would disrupt all these investments, stranding a lot of capital. Meanwhile, trade decisions are being made at Trump;s , without input from anyone who knows anything about trade economics.
Short Run and Long Run Costs-Long run costs have no fixed factors of production, while short run costs have fixed factors and variables that impact production.
Ans (b)- The key is the reltionship between desired investments and actual investments. when the former exceds , policies that increase income inequality will generally cause savings to rise and expenditure to shift from consumption to investment, this leads to higher future growth that will eventually more than compensate ordinary and poor households for the increase in increase inequality. In advanced economies, like those of United States and Europe, there is no savings constraint on desied investment, so income inequality can only result in higher debt or higher unemployment and slower growth. It is only in developing countries that income inequality may boost growth, although in countries that have pursued the forcing up domestic savings, like China has, actual investment can substantially exceed desired investment. this makes the reduction of income inequality or the channeling of wealth from the state to ordinary and poor households an urgent matter.
Ans(c)-The increasing opportunity cost is the concept that as to increase production of one good, the opportunity cost of producing the next unit increase. An opportunity cost will usually arise whenever an economic agent chooses between alternative ways of allocating scarce resources. Opportunity cost can be illustrated by using production possibility frontiers (PPFs) which provide a simple, powerful tool to illustrate the effects of making an economic choice. A PPF shows all the possible combination o f two goods, or two options available at one point intime.
A production possibilities frontier is used to illustrate the concepts of opportunity cost, trade-offs and also show the effects of economic growth. points within the curve show when a countrys resources are not being fully utilized. A country would require an increase in factor resources, an increase in the productivity or an improvement in technology to reach this combination.