Evaluations

Question 1

Minimum Wage Increase - Cost to Firms

Answer 1

May not reduce profits as workers will have higher productivity due to opportunity cost for losing their job is higher, could increase profits.

Question 2

Tariffs affect all trading relationships

Answer 2

Gravity Trade Theory - Countries in close proximity will continue to trade due to habits and extra cost for trading at larger distances.

Question 3

Gov Spending increasing AD

Answer 3

Ricardian Equivalence Theory - Government spending won’t increase AD as consumers will save in anticipation of a future tax increase. Gov deficit spending signifies a tax increase in future.