Basic Concepts in Economy

1. Describe two examples of important things that financial planning skills can help you do, and explain why these things are important to you personally. (4-6 sentences. 2.0 points)

Furthermore, if the interest rate was low before the cut then it may not appear to have a very big impact because people will have already have been taking advantage of the small cost of borrowing. Obviously if the interest rate was very high discouraging people from borrowing and in turn reducing consumer expenditure and investment by firms, then a rapid cut could see a high rise in the aggregate demand. Moreover, if someone is in the middle of paying back a mortgage on something like a house and interest rates fall they will effectively have more money because they will not be paying more on top of their mortgage on interest.

In the twelve key elements of economics, the second element states, “There is no such thing as a free lunch.” The author described how spending money on one particular thing means that we are sacrificing the chance to spend money on something else or if we do one specific thing, we give up the chance to do something else. In chapter nine, Schiff used an allegory to illustrate this same idea. The allegory he used was when the senator, Franky Deep, realized the people enjoyed getting things for free, but they did not like to pay taxes. After a monsoon, he took this as an opportunity to develop a government reconstruction program. This program made it look like the people on the island were getting the reconstruction for free, but really, the citizens were still paying for the work. Therefore, even though the people thought the reconstruction was free, it truly was not. One recent even that relates to this idea was in an article called, “Everything the Government ‘Gives’ Someone Must Be Taken from Taxpayer Dollars.” This article states that there is no such thing as the government giving something away free for the price of nothing. While the government has over eighty welfare programs to provide individuals free housing, cash, food, and medical care, these programs are not free. Instead, they are funded for by taxpayers.

Increasing government spending will shift the IS curve to the right. Increasing government spending will cause aggregate demand to go up, and shift the IS curve to the right.

1. Suppose that there are two states that do not trade: Iowa and Nebraska. Each state produces the same two goods: corn and wheat. For Iowa the opportunity cost of producing 1 bushel of wheat is 3 bushels of corn. For Nebraska the opportunity cost of producing 1 bushel of corn is 3 bushels of wheat. Present production is:

Obviously all of these factors can have some kind of effect on the economy. With cut backs comes a slowdown in output and production from businesses and can cause inflation to occur where people make the same or less amount of money but the price of goods goes up. Essentially, interest rates control the whole economy: if interest rates go up then the economy slows down and vice versa. However if interest rates go too low or stay low for a long period of time it can lead to inflation which also hurts the economy. In essence, higher interest rates are not necessarily a bad thing. Higher interest rates can curb inflation, meaning your pay will go further. A good example of this is the price of gasoline. When the price of gas goes up people drive less and spend less because more and more of their income goes toward fuel. When the price of gas goes down people have more money to spend. The increase in spending will be seen somewhere in the economy whether it is at the grocery store or online internet sales.

Rates on mortgages and other types of loans have been fairly low, creating more access to capital for businesses and making big-ticket purchases more affordable for consumers. If the FED raises the interest rate it will have several effects on the consumer. It will reduce their purchasing power and consumers shopping habits will be influenced. The decrease in purchasing power leads to a decrease in

Thus the aggregate supply goes down triggering a decline in employment levels. This in turn, makes consumers cautious spenders and they tend to save rather than spend resulting in decline in the aggregate demand

Assuming that prices remain constant, suppose that consumer assets and wealth lose value. The aggregate demand curve will undergo a:

Consumer expenditures rising during this term will move the aggregate demand curve to the right as increased spending increases demand. This BLS report indicates that the next term should show statistical aggregate demand increases, and according to the Classical model perspective encourages a laissez-faire approach concerning correction of the long-term economic factors (Colander, 2010). The Classical model works perfectly as consumer expenditures are trending on the rise when factoring consumer expenditures. Until a more apparent downturn shows itself, the invisible hand should continue to work naturally.

The conclusion of this appearance is aggregate demand for GDP. The Fed talks about consumption, investments, and government spending. The interest rates lowered will increase borrowing, spending and growth. The growth then turns into new jobs to lower the unemployment rate. The government spending cuts impede growth by loss of revenue for publicly provided goods or services. These publicly provided goods or services will also diminish with the loss of revenue. This could mean unemployment or drastic reduction in service, which will ultimately reduce consumption. Mr Bernanke’s comments seemed to assure investors as Stocks rose as he spoke and The Standard & Poor 500 index rose

The Federal Reserve 's actions affect the economy because changes in the real interest rate affect planned spending. For example, an increase in the real interest rate raises the cost of borrowing, reducing consumption and planned investment. Thus, by increasing the real interest rate, the Fed can reduce planned spending and short-run equilibrium output. Conversely, by reducing the real interest rate, the Fed can stimulate planned aggregate expenditure and thereby raise short-term equilibrium output. The Fed 's ultimate objectives are to eliminate output gaps and maintain low inflation. To eliminate a recessionary output gap, the Fed will lower the real interest rate. To eliminate an expansionary output gap, the Fed will raise the real interest rate.

The supply curve will shift to the left because of a decrease in supply and the equilibrium price will be high.

Aggregate demand will also increase, mainly because the products and services that are associated with oil and natural gas will become more affordable. As aggregate demand increases, the price will also likely increase in the short-term, at least until aggregate supply and demand regulate themselves at a new level. Ideally, however, new technologies will make oil and natural gas more affordable, which would lower the overall price of products and services, since costs, including transportation costs, are lower.

5.2.3 Social factors are very important because Qantas must keep improving the fleet of aircrafts to stay ahead of the competition.