Solution – simulated 1
<The actual exams are clearer and easier than the simulated exams, as what is supposed to be>
(1) President Reagan’s tax – cutting program had two components –
a) The predictive part: Reduced tax revenue leads to reduced government spending and activity
b) The prescriptive part: Reduced government activity qualifies as a desirable political reform.
Thus, economists may differ among themselves in their support or opposition of Reaganomics, on
of Reagan’s program.
(2)To be analytic means to be conceptually precise by introducing symbols for the magnitudes in the
Let there be two types of goods: x(1, t) and x(2, t) produced or c(1, t) and c(2, t), consumed, in year t,
with corresponding unit prices p(1, t) and p(2, t), respectively.
For definiteness, denote computer as good 1, and all others as good 2.
The comparison is between the two periods: t’ = 0 and t” = 15.
It is given that
i. There is a change of relative prices -:
p(1, t”) < p(1, t’),
p(2, t”) > p(2, t’).
p(1, t »)/p(1, t’) < 1 < p(2, t )/p(2, t’),
which implies the relative desirability of computer to
other goods has declined.
ii. There is a change of output composition –