Homework Clinic
Social Science Clinic => Economics => Topic started by: berenicecastro on Jun 30, 2018
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Write an essay on the national defense argument for tariffs. Include in your discussion points in favor of this idea as well as problems with its implementation. Is protection the best policy to achieve the stated ends? Explain.
What will be an ideal response?
Question 2
Explain how an increase in government spending would affect the DD-AA schedule in the short run.
What will be an ideal response?
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Answer to Question 1
The national defense argument is legitimate in those cases where domestic production is required. Problems include use in inappropriate situations as well as deadweight costs. A better policy would be to subsidize domestic production or subsidize imports during peace time.
Answer to Question 2
An increase in government spending will increase aggregate demand, which will shift the DD to the right. If AA remains unchanged, the new equilibrium will be at a higher Y and lower E. Since E is the nominal exchange rate, a lower E is an appreciation of the currency.