Economics Assignment: Analysis of Labor Markets, Trade, and Growth

This economics assignment solution addresses key concepts in labor markets, international trade, and long-run economic growth. The solution analyzes the Production Possibility Curve and Consumption Possibility Curve (PPC/CPC), explains the effects of changes in the employed population on output, and examines the relationship between investment, interest rates, and inflation. It also covers topics such as comparative advantage, terms of trade, government intervention, and the measurement of real GDP, nominal GDP, price index, and inflation. Furthermore, it explores the aggregate production function, technological change, productivity, and the determinants of employment, unemployment, and real wages. The solution includes answers to short answer questions and multiple-choice questions, providing a comprehensive understanding of these economic principles.

Running head: ECONOMICS 1
Online Test
Name
Institution

ECONOMICS 2
Solutions
Question 1
From the diagram above, the CPC shows the combination of the goods and services that the
country is able to trade with which is also equals the slope, known as the terms of trade (ToT).
At point A, the production of goods is attainable and at point C the service is also attainable.
Since the country is a net importer of services, it will consume at point B where there is relative
bundles of the two i.e. goods to produce and service to import.
Question 2
Increase in the normal fraction of the employed population will lead to an increased output per
person since the total output is measured in terms of the individual output times the number of

ECONOMICS 3
employed person in an economy. As a result, if the employed population was at 60%, then it
increases to 63 percent, it therefore shows that there was 0.03 increased rate in the output ratio in
an economy given by an increase in the normal fraction in the employed population.
Question 5
a) Investment and interest rate are inversely rated i.e. the cost of borrowing and the reward
from the lending are relatively different in nature. During this epidemic, the costs of
capital are relatively low thus leading to low interest rate earning from the capital and
investments. As a result after the COVID-19 with an increase in purchasing price of
capital, there will be a rise in interest rate thus leading to an increased return on the funds
used to finance investments. Assuming that the interest rate has increased by 2%, this
will also lead to an increase in the investment since the return on benefits received will be
greater compared to the initial capital. As a result, there will be gain from increased
purchasing prices of the capital with an increased interest rate.
b) Nominal interest rate is the interest rate before considering the inflation rate in an
economy i.e. interest rates on loans without considering the compounding interests that is
affected by the inflation. Increase in purchasing price will affect real nominal interest rate
in that there will be low money supply in the economy thus reducing the nominal
investment rate which as a result will also affect the nominal saving rate. This can be
explained using the following diagram;

ECONOMICS 4
From the above diagram, increase in the real nominal interest rate from A to B leads to reduction
in the real money availability in the economy thus reducing the saving rate which in turn affect
negatively rate of investment in an economy.
MULTIPLE CHOICE QUESTIONS
7 E
8 C
9 C
10 C
11 A

ECONOMICS 5
12 D
13 F
14 A