Reference no: EM133461208

Questions: For each prompt below, carefully and thoroughly follow the directions. For the graphs, be certain to accurately label all axes, curves, and points as appropriate. Use arrows to indicate the direction of any shifts. Show your work for any calculations.

Country Z has an economy with a natural unemployment rate of 3 percent, and its current unemployment rate is 6 percent. Its economy produces consumer goods and capital goods in equal amounts.

(a) Illustrate the economy of Country Z on a fully labeled production possibilities curve, assuming increasing opportunity cost. Label a point where the economy is currently operating as point Z.

(b) The government spends money on new infrastructure in direct response to Country Z's economic situation. Would the national income decrease, increase, or stay the same? Explain.

(c) On a fully labeled loanable funds market graph, illustrate the impact of the policy from part (b) on the equilibrium real interest rate and the equilibrium quantity of funds.

(d) Assume that the infrastructure policy returns Country Z to full employment, but that there has been no change in production of consumer goods. On your PPC graph from part (a), illustrate a new short-run production point as point R.

(e) In the long run, will the long-run aggregate supply of Country Z decrease, increase, or stay the same? Explain.

Country Alpha

(f) Country Alpha has a population of 4 million people, and its real GDP is $200 million. Calculate Country Alpha's per capita real GDP.

(g) There is neither technological advancement nor an increase in human capital over the next two years. However, now the GDP per capita of Country Alpha is $55. Identify a policy that could lead to this change.

(h) Calculate the economic growth rate for Country Alpha over the time period described in part (g). Show your work.