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Argentina and New Zealand each produce wheat and mutton under conditions of perfect competition, as shown on the accompanying production possibilities curves. Assume that there is no trade between the two countries and that Argentina is now producing at point A and New Zealand at point C

. a.What is the opportunity cost of producing each good in Argentina?

b.What is the opportunity cost of producing each good in New Zealand?

Exercise 4.1 You have the following annual data for an economy: Year Real GDP Consumer price Labour force Employment (2007 $) index (2007=100) (000) (000) 2012 1.282 109.1 17.593 16.537 2013 1,307 111.9 17.857 16.696 2014 1,288 138.9 18.125 16.856 (a) What was the rate of growth of real GDP from 2012 to 2013, and 2013 to 2014? (b) What was the rate of inflation in 2013 and in 2014? (c) What were the rates of growth of the labour force and employment from 2012 to 2013, and 2013 to 2014? (d) What happened to the unemployment rate between 2012 and 2013, and between 2013 and 2014? Exercise 4.2 Suppose the economy represented by the table in Exercise 4.1 above had a population of 27.885 thousand in 2014. (a) What were the participation and employment rates in the economy in that year? (b) Suppose a mild recession in that year discouraged some unemployed workers and they stop looking for work. As a result the participation rate fell to 64.5 per cent. How would the unemployment rate and the employment rate be affected? Why? Exercise 4.3 If brewers buy barley and hops from agricultural producers, natural gas to fire their brew kettles from gas companies and bottles from glass manufacturers as in the following table, what is the value added of the brewing industry? If brewers also wholesale some of their output to pubs, is that output counted in GDP? Explain your answer. Costs (millions of current $) of: Brewery retail sales Barley and hops Natural gas Bottles 1000 350 125 150 Exercise 4.4 The economy has two main industries. One produces services and the other produces goods. The services industries produce services for households and businesses with a total market 100 - Economic activity & performance value of $10,000. The goods industries produce goods for the use of both households and busi- nesses with a total market value of $5,000. The service industries spend $1,000 on computers and paper and envelopes supplied by the goods industries. The goods industries spend $1,000 to buy financial, insurance, advertising and custodial services supplied by the service industries. Explain how you measure nominal GDP in this economy and the value of output you find?Exercise 6.5 The diagram below shows the aggregate expenditure schedule for the economy and the equilibrium condition on the 450 line. AE Y =AE F AE =C+1+X-IM A Real GDP H & Income (a) Suppose output is OG. What is the level of planned aggregate expenditure? Is planned ex- penditure greater or less than output? (b) What is the size of the unplanned change in inventories at output OG? (c) How will business firms respond to this situation? (d) What is the equilibrium income and expenditure? (e) Suppose output is at OJ: What is there an unplanned change in inventories? Exercise 6.6 The following diagram shows an economy that initially has an aggregate expenditure function AK. Exercises for Chapter 6 . 149 AE F =AE Real GDP G H & Income (a) What is the initial equilibrium real GDP? (b) Suppose there is an increase in the marginal propensity to import. What is the new aggregate expenditure function? (c) What is the new equilibrium real GDP and income? (d) Suppose, instead, the marginal propensity to consume has increased. What is the new aggre- gate expenditure function? What is the new equilibrium real GDP and income?al Sprint 6:48 PM 4 $ 13% blackboard.northshore.edu NUMERICAL PROBLEMS Panel (a) Panel (b) Argentina New Zealand 400 400 300 300 315- -- D Slope = -1 Slope = -1 Mutton per period 200 Mutton per period 200 C -130)-= = =. . A 100 100 -75- 160 0 100 200 300 400 500 0 100 200 300 400 500 Quantity of wheat per period Quantity of wheat per period 1. Argentina and New Zealand each produce wheat and mutton under conditions of perfect competition, as shown on the accompanying production possibilities curves. Assume that there is no trade between the two countries and that Argentina is now producing at point A and New Zealand at point C. a. What is the opportunity cost of producing each good in Argentina? b. What is the opportunity cost of producing each good in New Zealand? c. Which country has a comparative advantage in which good? Explain. d. Explain how international trade would affect wheat production in Argentina. e. How would international trade affect mutton production? f. Explain how international trade would affect wheat production in New Zealand. How would it affect mutton production? g. How would trade between the two countries affect consumption of wheat and mutton in each country? 2. Assume that trade opens between Argentina and New Zealand and that, with trade, a pound of mutton exchanges for a bushel of wheat. Before trade, Argentina produced at point A and New Zealand produced at point C. Argentina moves to point B, while New Zealand moves to point D. Calculate and illustrate graphically an exchange between Argentina and New Zealand that would leave both countries with more of both goods than they had before trade. 3. Assume that the world market for producing radios is monopolistically competitive. Suppose that the price of a typical radio is $25. a. Why is this market likely to be characterized by two-way trade? b. Suppose that Country A levies a tax of $5 on each radio produced within its borders. Will radios continue to be produced in Country A? If they are, what will happen to their price? If they are not, who will produce them? c. If you concluded that radios will continue to be produced in Country A, explain what will happen to their price in the short run. Illustrate your answer graphically. d. What will happen to their price in the long run? 4. Suppose radio producers in Country A file a successful anti-dumping complaint against their competitors, and that the result is the imposition of a $10 per radio tariff on imported radios. a, Illustrate and explain how the $10 tariff will affect radio producers in Country A in the short run. b. Illustrate and explain how the $10 tariff will affect radio producers in Country A in the long run. C. How will the level of employment be affected in Country A? d. Explain how the tariff will affect consumers in Country A. Who will benefit from the anti-dumping action? Who will bear the burden of the action