Author Question: Which of the following is a reason why IBM decided to provide consulting services rather than ... (Read 71 times)

DyllonKazuo · **on:** Jun 30, 2018

Which of the following is a reason why IBM decided to provide consulting services rather than manufacturing machines?

A) It had a comparative advantage in providing consulting services.
B) It had a comparative advantage in manufacturing machines.
C) Manufacturing of machines generated a positive.
D) Manufacturing of machines generated a negative.

Question 2

Why do our political leaders favor exports of U.S. goods and buy American policies?

What will be an ideal response?

lkanara2 · **Reply #1 on:** Jun 30, 2018

Answer to Question 1

A

Answer to Question 2

In the open economy model exports are an added component of total demand, thus an increase in exports will shift the planned expenditures line up and increase equilibrium income by a multiple amount. The multiplier in this case is the MPC adjusted for the propensity to import. Thus imports affect the multiplier; if U.S. residents become more attracted to foreign goods the marginal propensity to import will increase, causing the multiplier to fall and reducing the slope of the planned expenditures line. This will cause output to decrease. Hence political leaders favor increased exports (because it increases GDP and reduces unemployment) and reduced imports (because to the extent that U.S. residents buy U.S. goods rather than imports, output will be higher).