# Demand components: Investment and net exports

Analyse the effects of the COVID-19 pandemic on investment and trade (exports and imports, in
particular). Refer to the theories studied in the course. Provide some examples from your chosen
country. Do you think investment and trade will also be affected after the pandemic is over?
Explain.
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The tabulation of the incremental cash ?ows between alternatives A and B is shown on the next page. Alternative A has a 3-year life and alternative B a 6-year life. If neither alternative has a salvage value, what is ( a ) the ?rst cost of alternative A and ( b ) the ? rst cost of alternative B? Year Incremental Cash Flow (B  A), \$ 0 20,000 1 5,000 2 5,000 3 12,000 4 5,000 5 5,000 6 5,000

Based on consulting economists report, th total and marginal cost functions for Advanced Electronics, Inc. are
TC = 200 + 5Q  0.04Q2 + 0.001Q3
MC = 5  0.08Q + 0.003Q2
The president of the company determines that knowing only these equations is inadequate for decision making. You have been directed to do the following:
1. Determine the level of fixed cost (if any) and equations for average total cost.
2. Determine the rate of output that results in minimum average variable cost
If fixed costs increase to \$500, what output rate will result in minimum average variable cost

You are given the following model:
appr = b 0 + b1 loanprc + b 2atotinc +b 3 atotinc.^2sq. + b4obrat + b5pubrec + u,
4 5 2 b 0 b1 b 2 b 3 b b ,
in which:
 approve: =1 if loan is approved, and 0 if not.
 obrat: other obligations, % of total income
 pubrec: = 1 if filed for bankruptcy
 atotinc: Total monthly income
 loanprc: loan amount /purchase price
 atotinc.^2sq. = atotinc* atotinc
1. What sign would you expect from each partial slope coefficient in the model above? Justify your answers.
From the estimation of model above, one can obtain the following:
appr = 1.2-0.189loanprc +1.7e^-06atotinc-4.3e^-11atotinc^2-0.0054obrat-0.28 pubrec
(0.04) (0.038) (2.7e^ -06 ) (5.6e^ -11 ) (0.00088) (0.0358)
R^2= 0.1087 n =1989
1. Interpret the coefficients of pubrec, and of loanprc.
2. How do you explain the signs of atotinc and atotinc^2 ?

Assuming that global international trade sharply declines because of the trade war (in the forms
of increases in tariff and other trade barriers such as import quota and export subsidies on both
sides) between the U.S. and China, the U.S. and the European Union, and the U.S. and Japan.
Everything being equal, explain in 700-800 words the likely impact on the following:
 Global productivity, economic growth and inflation
 Australian consumers who buy goods imported from China, Japan and the United States.
 Australian producers who need to source from both China and the United States.
 Australian exporters such as a mining company who exports iron ore and coal to China and
Japan.

An economy produces three goods: houses, guns, and apples. The price of each is \$1. For the purposes of this problem, assume that all exchange involving houses involves newly constructed houses.
(a) Households buy 10 houses and 90 apples, eating them. The government buys 10 guns. There is no other economic activity. What are the values of the different components of GDP (consumption, investment, government spending, exports/imports)?
(b) The next year, households buy 10 houses and 90 apples. The government buys 10 guns. Farmers take the seeds from 10 more apples and plant them. Households then sell 10 apples to France for \$1 each and buy 10 bananas from Canada for \$2 each, eating them too. What are the values of the components of GDP?
(c) Return to the economy in part 1a. The government notices that the two richest households consume 40 apples each, while the ten poorest consume one each. It levies a tax of 30 apples on each of the rich households, and gives 6 apples each to the 10 poorest households. All other purchases by households and the government are the same as in
(a). Calculate the components of GDP.

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