Author Question: Government spending and taxes A) do not change aggregate demand. B) are an important component ... (Read 91 times)

jman1234 · **on:** Jun 30, 2018

Government spending and taxes

A) do not change aggregate demand.
B) are an important component of aggregate supply.
C) do not play a big role in determining GDP.
D) are a major determinant of aggregate demand.

Question 2

Assume that both the United States and Germany produce beef and computers. The U.S. can produce 200 computers or 1,000 pounds of beef per day. Germany can produce 500 computers or 250 pounds of beef per day. What is the opportunity cost of beef and computer chips in each country? In which good does each country have a comparative advantage? What is the range for mutually beneficial trade in computers?

What will be an ideal response?

lorealeza77 · **Reply #1 on:** Jun 30, 2018

Answer to Question 1

D

Answer to Question 2

In the U.S., the opportunity cost of computers is 5 pounds of beef. The opportunity cost of a pound of beef is 1/5 computer. In Germany, the opportunity cost of a computer is 1/2 pound of beef. The opportunity cost of a pound of beef is 2 computers. Since 1/5 is less than 1/2, the U.S. has a comparative advantage in beef, and likewise, Germany has a comparative advantage in computers. For both nations to benefit, a computer must trade for between 1/5 and 1/2 pounds of beef.