In a two-country world of Japan and Korea, suppose Japan can produce either 600 radios or 300
TV sets in one day with all its available resources, while Korea can produce 100 radios or 200
TV sets in one day with all its available resources.
A) Graph the Production Possibilities Frontier for each.

B) Calculate the opportunity cost of producing one radio in each country. Which country

should specialize in producing radios?

C) Calculate the opportunity cost of producing one television in each country. Which

country should specialize in producing televisions?

D) Both countries need 100 television sets and allocate any extra production towards

radios. Therefore, if they cannot trade, Japan will produce 100 television sets and 400
radios, while Korea will produce 100 television sets and 50 radios. Now assume that
they specialize. Korea produces only televisions and Japan produces only radios. How
many more radios and television sets are produced?

E) Are they both better off? Indicate the new consumption points on the PPF graph.

Explain in detail, using graphs and written explanation, the ways in which monetary and fiscal policies

are similar and the ways in which they are different. You should mention what makes the policies
successful and what makes them less than perfect.

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