Compare the Effectiveness of Fiscal Policy in an Open Economy

question 161

Essay

Compare the effectiveness of fiscal policy in an open economy with mobile international capital to fiscal policy in a closed economy.Why is it different? Use an appropriate diagram to illustrate your answer.

Comprehend the difference between rising, falling, and constant long-run average total costs.

Recognize the role of specialization in achieving economies of scale.

Understand the difference between marginal cost, average total cost, and marginal product in the context of production and cost functions.

Distinguish between explicit and implicit costs, and understand their implications for economic and accounting profit.

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Definitions:

Persistently Rising Employment

Refers to a continuous increase in the number of employed individuals over a period, indicating economic growth and stability.

Backward-Sloping Labor Supply

A situation where higher wages lead to a decrease in the quantity of labor supplied because the income effect outweighs the substitution effect.

Labor-Augmenting

Technological improvements or changes that increase the efficiency or productivity of labor.

Marginal Productivity

The additional output resulting from the employment of one more unit of a factor of production, holding all other inputs constant.