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A goal of the consumer is to maximize utility.
a. if the budget constraint is M=P1X1+P2X2 show graphically and explain the unique bundle that will maximize utility given the consumer's tastes. Explain why this bundle is unique and optimal. Inlcude in your answer a mathematical explanation describing the equilibrium condition for utility maximization.
b. If the consumer's income falls, explain and show graphically any adjustments that will be made in the consumer's purchases of X1 and X2. Compare the mathematical expression describing the utility maximizing bundle at the two levels of income.
c. On separate diagrams, plot the income-consumption curves for X1 and X2. Explain why each has the particular shape drawn.
Economists have often found that purchasing power parity gives a closer approximation to reality during periods of very high inflation than during "normal" times. can you provide an explanation for why this might be so?
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Suppose there is a $200 billion recessionary gap. If there are no taxes or imports to restore the economy back to potential GDP how much should government expenditure be changed if the marginal propensity to consume is 0.75? Does government expenditu..
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Assume an American company sells $10 million in goods to a German firm. The American company will receive less than $10 million in revenues if (assume no transactions to prevent exchange rate risk):
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Which of the following will make crowding out caused by government borrowing more severe?
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