1. Assume that in the United States, nominal wage rates rise faster than labor p
ID: 1231762 • Letter: 1
Question
1. Assume that in the United States, nominal wage rates rise faster than labor productivity. Analyze the short-run effects of this situation on each of the following.(a) The general price level
(b) The level of exports
(c) The international value of the dollar
2. Suppose a presidential candidate promises to increase the government budget surplus and claims that doing so will stop U.S. citizens from investing in foreign companies and increase the value of the dollar. Evaluate this promise.
3. Explain how an increase in the demand for capital goods in the U.S. can lead to a change in the U.S. exchange rate.
Explanation / Answer
1. A The prices of the products will increase, because there is more money being used to pay the employees. B. The level of exports will go down, because productivity is not as fast, thus there is not as much to export. C. The value of the dollar will go down, because you will get more money, but at the same token prices also increase. 2. You can't take anything a politician says for real, but you probably already knew that. Anyway, he is promising that spending will go down, and prices will drop. This will create an rise in the economy, and it will also increase in trust in US investing. Thus more people will invest in American products and withdraw from international investing. 3. If there is an increase in US goods, then the productivity will need to increase. Jobs will need to made/added. The economy in the US will begin to rise if there is a withdraw from foreign markets. Hope I helped!
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