Diagram questions Flashcards
This diagram shows the effect of a depreciation of the South Korean won on the South Korean economy.
What is it showing?
The diagram shows demand pull inflation - an increase in AD has increased the price level.
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The diagram shows the effect of a depreciation of the South Korean won on the South Korean economy.
The diagram below shows the impact of a depreciation on the Current Account.
Which of the following statements about the point labelled X is true?
The Marshall-Lerner condition is met
The diagram shows the impact of an exchange rate depreciation on the Current Account.
what is the sum of the elasticity of demand saying and what does it mean?
The sum of the elasticity of demand for imports and exports is greater than one
Point A is in the downward sloping part of the curve, as shown in blue in the below diagram. In the short run, demand for imports is inelastic meaning a depreciation will increase import expenditure and worsen the Current Account. When the price elasticity of demand for imports plus the price elasticity of demand for exports is less than one, the Marshall-Lerner condition is not satisfied and so the Current Account worsens.
As demand becomes more elastic (for example because companies finish contracts they were previously tied down in), demand for imports decreases and so import expenditure falls. This effect is shown by the pink part of the diagram. Here, the Marshall-Lerner condition is met meaning the price elasticity of demand for imports plus the price elasticity of demand for exports is greater than one. The Current Account is improving!
What will happen to the equilibrium price of grapes when the government buys up the grapes to put in the buffer stock?
The government is buying up grapes, which means that there are fewer grapes in the market. Supply is therefore decreasing. This will increase the equilibrium price back towards the average price, PA
The diagram below shows the market for grapes under three types of weather conditions.
The government in Chile is operating a buffer stock scheme with a floor price of P1 and a ceiling price of P2. If there is a good harvest, what is the smallest quantity of grapes that the government will need to buy up to get the price into the range ?
The government will buy up a quantity of ED. Quantity supplied in a good harvest is D, but this will lead to a price which is below the floor (P1). So, the government wants to bring the price back up by decreasing the supply of grapes. To bring the price back within the range, they need to buy up ED grapes because the price at E will be the floor (P1). Buying more than this will bring the price further within the range, but the question asks for the minimum quantity that the government needs to buy up. Generally, the government will intervene as little as possible in order to bring the price within the range.
The diagram below shows the market for grapes under three types of weather conditions.
The government in Chile is operating a buffer stock scheme with a floor price of P1 and a ceiling price of P2. If there is a bad harvest, what is the smallest quantity of grapes that the government will need to buy up to get the price into the range ?
The government will release a quantity of AB on to the market. Quantity supplied in a bad harvest is A, but this will lead to a price which is above the ceiling (P2). So, the government wants to bring the price back down by increasing the supply of grapes. To bring the price back within the range, they need to release AB grapes, because the price at B will be the ceiling (P2). Buying more than this will bring the price further within the range, but the question asks for the minimum quantity that the government needs to release. Generally, the government will intervene as little as possible in order to bring the price within the range.
Which of the following will occur when the government sets a price range for a buffer stock scheme ?
The floor is the lower limit in the price range and it is set below the average price.
The ceiling is the upper limit in the price range and it is set above the average price.
The diagram below shows the market for wheat following the harvest in three different years.
The government is operating a buffer stock scheme with a floor price of P1 and a ceiling price of P2. Which of the following shows the minimum intervention from the government in 2016 ?
The government will buy up a quantity of MN. Quantity supplied in the 2016 good harvest is N, but this will lead to a price which is below the floor (P1). So, the government wants to bring the price back up by decreasing the supply of wheat. To bring the price back within the range, they need to buy up MN wheat, because the price at M will be the floor (P1). Buying more than this will bring the price further within the range, but the question asks for the minimum quantity that the government needs to buy up. Generally, the government will intervene as little as possible in order to bring the price within the range.
The government is operating a buffer stock scheme with a floor price of P1 and a ceiling price of P2. Which of the following shows the minimum intervention from the government in 2014
The government will release a quantity of JK on to the market. Quantity supplied in the 2014 bad harvest is J, but this will lead to a price which is above the ceiling (P2). So, the government wants to bring the price back down by increasing the supply of wheat.
To bring the price back within the range, they need to release JK wheat, because the price at K will be the ceiling (P2). Buying more than this will bring the price further within the range, but the question asks for the minimum quantity that the government needs to release. Generally, the government will intervene as little as possible in order to bring the price within the rang
The graph below shows the aggregate supply and demand curves for an economy initially operating at the equilibrium PLe, Ye. The LRAS shifts to LRAS1.
Which of the following policies is most likely to have the effect shown on the graph?
Investing in education would be a supply-side policy and would help to increase the long run potential of the economy by increasing human capital. It allows businesses to operate more efficiently and increase productivity. This would shift LRAS to the right as shown.
However, investing in education also involves an increase in public expenditure which is a type of expansionary fiscal policy. So, there is an overlap between some fiscal policies and supply-side policies.
