How much should the government increase their spending to achieve the 30000 increase in national income (to the nearest whole number)?

ECO701 Economics and the Business Environment Coursework May 20 Semester.

Coursework 2

This coursework contains a series of questions. Please complete all of the questions utilizing economic concepts, models and wider reading. There is no specific format required i.e. report or essay format, please note the question that you are addressing and provide an answer to the question.

The word limit of this coursework i.e. completion of all questions is 2500 words (excluding graphs, tables and references).

Question 1

Review the diagram below for a firm that operates in a Monopolistic market structure selling rugs for homeware. The owners of this company have conducted relevant research to forecast their demand, marginal revenue, marginal cost and average cost which are shown in the diagram below. Answer the subsequent questions given your interpretation of the diagram to provide the owners with advice in relation to their conduct and competing in their market.

1. Use the profit maximizing condition to advise on the quantity that the firm should produce and the price they should charge.
2. Given the information in the diagram what would the total revenue and total cost of this firm?
3. Would the firm earn super normal profit or make a loss, and by how much?
4. From your knowledge of this market how likely is that the situation depicted in the graph represents long-run equilibrium?

Question 2

The UK Government has two potential policies that it is considering. Using your knowledge of externalities and economics overall consider whether or not you would agree with the policies. You can also suggest amendments to the policies. Ensure that you justify your answer and make use of relevant diagrams to support your answer. It is advised that you conduct a thorough cost/benefit analysis for each policy.

Policy 1: Banning the consumption of alcohol in public places, i.e. alcohol can only be purchased for consumption at homes but no longer in bars, restaurants etc.

Policy 2: Making education free up to undergraduate degrees across the UK for all citizens i.e. a person would only need to pay for a Master’s level degree or above.

Question 3

The government wants to make an injection to demand in the economy to achieve a 30000 increase in national income.

The current state in the economy is as follows; Autonomous Consumption: 10000, Marginal Propensity to Consume: 0.4, Investment: 15000, Government Spending: 20000, Net Exports: 5000, Income Tax rate: 25%.

1. Calculated the current equilibrium income in the economy
2. The government try to increase their spending by 20000. Does this achieve the desired increase of 30000?
3. How much should the government increase their spending to achieve the 30000 increase in national income (to the nearest whole number)? (Hint: consider the what the multiplier in this economy is)

Question 4

The UK Government wants to prioritize increase economic growth and employment in the economy. Consider how fiscal and monetary policy could be used to achieve an increase in economic growth and employment as well as the strengths and weaknesses of these two stabilization policies given current circumstances in the UK. Also consider any policy conflict that may occur.

Given the current circumstances in the economy do you believe that fiscal policy or monetary policy would be more effective at achieving an increase in economic growth and employment? Ensure that you appropriately justify your answer and make use of relevant diagrams to support your explanations. (N.B. consider a holistic review of macroeconomic aspects to support you answers including types of inflation, type of unemployment etc.)

Question 5

You are asked for advice on what currency to invest in given current news/speculation. The currencies being considered are the Pound Sterling, the Euro and the Canadian Dollar.

When conducting your research on news/speculation related to these currencies you come across some particularly insightful articles that have the following headlines: There is a significant lack of confidence in UK investments given current circumstances; The European Central Bank has noted that it is highly likely to conduct Quantitative Easing; There is likely to be a surge in Foreign Direct Investment in Canada.

Using your knowledge of exchange rates illustrate the changes the above headlines are likely to have on the noted currencies using relevant diagrams. Make recommendations on which currencies should be sold and which should be purchased given your analysis.