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BUECO5903 Assignment Sample

Instructions:

This assignment contains four questions. You are required to answer all four questions for assignment help.

This is an individual piece of assessment. Make sure your submission is an original

Submission - this means it must be the creation of the person submitting it.

You are required to explain your reasoning and use diagrams where appropriate.

Assessment weight: This assessment task constitutes 15 percent of the total assessment for this course.

Due date: Your instructor will advise you of the submission date of this assessment task.

Assignment to be submitted electronically in the drop box in your Moodle shell.

Question 1

a) Give the definition of GDP and explain what items are not included in its calculation?
b) How is GDP calculated using the expenditure approach?
c) How is GDP calculated using the income approach?
d) Explain the problem of "double-counting" and how it can be avoided in calculating GDP

Question 2

Assume that an economy is initially operating at the natural rate of output (full employment output). Use the AD-AS model to illustrate graphically the effects on price and output of an increase in government spending and a decrease in the cash rate. Explain your assumptions with respect to the range of aggregate supply of your analysis.

Question 3

Explain in detail the process of Monetary Policy transmission of an increase in the cash interest rate. Use relevant graphs to describe how a Central Bank’s action on the interest cash rate ripple through the economy and lead to the target policy goal. (Three connected diagrams should be used: (1) money supply and demand (2) investment demand schedule (3) AS/AD diagram. Interest rates is the variable that connects the first and second diagram).

Question 4

Using the World Bank’s World Development Indicators database, https://databank.worldbank.org/home.aspx,
a) Complete the following table.


*or latest available year

b) Produce a plot for each variable (GDP, gdp growth, inflation) comparing the four countries.

c) What can be inferred with respect to economic growth and price control in each of these economies?

Solution

Answer 1:

A - In macroeconomics, GDP or Gross Domestic Product represents total value of entire economic activities that take place in a country in a specific period of time, for example, one year (Dynan and Sheiner 2018). In measuring GDP, total market prices of all final goods and services, which are produced in a specific geographic location in a particular year, are considered.

In measuring GDP, some items are not considered. These are:

i. Goods and services, manufactured in other countries and imported
ii. Goods and services produced in previous year
iii. Goods and services, which are resold
iv. Goods and services that are sold in illegal process
v. Transfer payments
vi. Intermediate goods that are used as input in producing another good

B - GDP can be measured with the help of expenditure method. This method considers expenditures of all groups, which conduct economic activities in a year. In other words, this method considers all the expenditures that are made on final goods and services (Magdalena and Suhatman 2020). In this measure, four components are considered and these are private consumption (C), government spending (G), investment (I) and net exports (NX) (total exports- total imports). Hence, the formula of GDP using expenditure method is written as:

GDP = C+I + G +NX

C. In measuring GDP of a country, the income approach can be applied. This approach considers income of all production factors, which are, labour, capital, land and entrepreneur. Those factors contribute in the production of final goods and services of the country in a year. Consequently, labour, capital, land and entrepreneur receive their income in the form of wage, interest, rent and profit, respectively (Aitken 2019). Income approach depends on the accounting reality where all expenditure made on economic activities within the country equates with total income of all factors that produce final goods and services.

D. One can face the problem of double-counting at the time of measuring GDP of a country in a particular year. Double-counting implies the process of adding a product value for two times in the GDP measurement (Fforde 2021). To avoiding this problem of multiple counting, the value of final goods and services are not considered. Instead, the value-added method is considered in which value added in each stage of production is taken.

Answer 2:

In the vertical range of the Aggregate supply curve, an economy can produces output at its full employment level. At this stage, the movement of aggregate demand can change the price level only while output level remains unchanged. As the government spending increases, it leads the aggregate demand curve to move upward (Lisi 2021). Moreover, a decrease in the cash rate leads the borrowers to borrow money for investment and consumer expenditure purpose. As a result, the aggregate demand curve can shift upward. The situation is shown below:


It is seen that as the AD curve shifts upward from AD to AD1, the price level will also increase from P0 to P1. On the other side, the output level will remain unchanged as it will be at the vertical segment or Classical range of the AS curve.

Answer 3:

The Monetary Policy Transmission is a process of changing cash rate. The process influences both the economic activity and inflation in the economy. As cash rate rises, expenditure in the private sector declines and it further influences total productivity of the firms to decline. This in turn cause economic activity and total employment to decrease (Chatziantoniou, Gabauer and Stenfors 2021). The following diagram shows the activity of the Central bank on the interest cash rate ripple. Here, the interest rate is taken as variable in the first two diagrams. The first diagram represents money supply and money demand curves, the second diagram represents investment demand schedule and the third diagram represents aggregate demand and supply curves.

Answer 4:

a.

b.

In figure 3, GDP per capita of Australia, China, India and US are compared for the years 2006, 2009, 2014 and 2020. In 2006, the GDP per capita of US was the highest followed by Australia. However, GDP per capita of China and India remained very low comparatively. The situation remained same in 2009. From figure, it is seen that GDP per capita of Australia and China increased in this year compared to that in 2006. In 2014, Australia’s GDP per capita increased considerably and it surpassed US. Moreover, China’s GDP per capita also increased in this year. In 2020, GDP per capita of the US, China and India increased while that of Australia declined.

As per figure 4, GDP growth rate of China remained the highest in 2006 followed by Indian, US and Australia. In 2009, GDP growth rate of each country declined while that of US became negative. In 2014, US’s GDP growth rate was improved and became positive. In 2020, the GDP growth rate of Australia was nil while that of India and US were negative.

Inflation rate of India remained the highest in 2006, 2009, 2014 and 2020 compared to other countries. On the other side, Inflation rate of US and China became negative in 2009 which means these countries faced deflation.

c.

From the comparisons, it is understood that India needs to control its price for controlling inflation. China has gained significant economic growth over the years while Australia has also successfully maintained its economic growth.
 

References:

Aitken, A., 2019. Measuring welfare beyond GDP. National Institute economic review, 249, pp.R3-R16.

Chatziantoniou, I., Gabauer, D. and Stenfors, A., 2021. Interest rate swaps and the transmission mechanism of monetary policy: A quantile connectedness approach. Economics Letters, 204, p.109891.

Dynan, K. and Sheiner, L., 2018. GDP as a measure of economic well-being. Work. pap, 43.

Fforde, A., 2021. Measuring economic transformation–what to make of constant price sectoral GDP–evidence from Vietnam. real-world economics review, p.113.

Lisi, G., 2021. Can the AD-AS Model Explain the Presence and Persistence of the Underground Economy? Evidence from Italy. Economies, 9(4), p.170.

Magdalena, S. and Suhatman, R., 2020. The Effect of Government Expenditures, Domestic Invesment, Foreign Invesment to the Economic Growth of Primary Sector in Central Kalimantan. Budapest International Research and Critics Institute-Journal (BIRCI-Journal), 3(3), pp.1692-1703.

Worldbank 2022. World Development Indicators | DataBank. Available at: https://databank.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG/1ff4a498/Popular-Indicators (Accessed: 22 January 2022).

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