BUSINESS ECONOMICS ASSIGNMENT -

Part - Macroeconomics - Answer any five (5) of the following questions.

Question 1: Suppose the following are National Accounts data for a given year for some particular country:

(a) Calculate GDP using the Income method.

(b) Calculate GDP using the Expenditure method at market prices.

(c) Calculate Gross National Expenditure (GNE).

(d) Calculate Net Domestic Product (NDP).

(e) Why might NDP be a better measure of economic performance that GDP?

(f) Calculate Gross National Product (GNP).

(g) Calculate Net National Product.

(h) Calculate Current Account Balance.

(i) Calculate Gross National Savings: If tax revenues are $17 Billion for the fiscal year, then what is the value of national savings?

(j) If tax revenues are $17 Billion for the fiscal year, then what is the value of national savings?

(k) If mpc_d remains at 0.63 and GDP changes to $4873 billion; then what will the new level of domestic consumption be?

(l) If exports then increase by $4 billion, private sector investment decreases by $3 billion; and government consumption and investment decrease and increase by $3 billion and $4 billion respectively; by how much will GDP change and what will its new value be?

Question 2: (a) Which of the following are final goods and services and which are intermediate goods and services? Please explain why in your answer.

(i) A windscreen purchased by a motor vehicle spare parts supplier;

(ii) A new bulldozer to be used by a construction company;

(iii) A household cleaning service purchased by a family from a domestic cleaning service company;

(iv) Coking coal

(b) An economy produces final goods and services with a market value of $870 billion in a given year, but only $720 billion worth of goods and services is sold to domestic or foreign buyers. Is this nation's GDP $870 billion or $720 billion? Explain your answer.

(c) Explain why a new truck sold for use by a mining company is a final good, even though it is a fixed investment (capital) used to produce other goods.

Should the value of this truck then be added to GDP or should only the goods it transports be included in .GDP? Explain your answer.

Question 3: (a) Illustrate and explain with diagrams the difference between demand-pull and cost-push inflation;

(b) Provide (describe) two (2) causes of each type of inflation.

Question 4: (a) Do you think that macroeconomic policy should be designed to achieve a measured unemployment rate of zero? Why or why not should this be the case?

(b) How did the classical economists interpret long-run unemployment?

(e) How does structural and cyclical unemployment differ and how concerned should policymakers be about these types of unemployment?

(d) Describe the essential differences between the Keynesian and monetarist approaches to the workings of monetary policy. Make sure that your explanation includes the relevant assumptions.

Question 5: Using the aggregate demand - aggregate supply (AD-AS) diagram, show how the four economic events would affect economic activity and the price level. (Note: use a separate AD-AS diagram for each event)

(a) A decline in the marketing and selling skills of firm marketing agents;

(b) An increase in imports;

(c) A significant destruction in an economy's capital stock because of war;

(d) A decrease in personal income tax;

Question 6: (a) The consumer price index (i.e. CPI) is the most commonly used measure of changes in the general level of prices in Australia. Discuss some of the advantages and disadvantages of using this measure.

(b) Explain why some people 'lose' from inflation and why do some people 'win' from inflation?

(c) How accurate is the Australian measure of unemployment?

Question 7: Assuming the following changes to an economy are the only changes: Identify for each change, what GDP variable would be affected (i.e. C, I, G, X or M) and whether it would cause it GDP to increase or decrease?

(a) A town council funds a new library;

(b) The Federal Government raises the tax free threshhold;

(c) Fewer tourists visit Australia;

(d) Consumers demand more domestically produced goods but total consumption remains constant;

(e) People are purchasing bonds issued by the banks;

(f) Manufacturing firms are encouraged by lower interest rates to borrow to finance the building of new factories;

(g) Consumers abroad are deterred by high prices for the Australian dollar from buying imports from Australia;

(h) Both taxation and government expenditure are reduced;

(i) People decide to save more of their income;

(j) Our trading partners abroad begin to recover from a recession.

Question 8: (e) Describe three problems of using fiscal policy to achieve a precise level of GDP.

(f) Why is frictional unemployment inevitable in an economy characterised by imperfect job information and non-zero job-search time?

(g) Is structural unemployment something macroeconomic policymakers should be concerned about? How does it differ from cyclical unemployment?

Question 9: (h) If the Bank Negara Malaysia sold RM800 million of government securities to private sector money markets, holding other things being held constant, what is the effect on:

(i) The economy's monetary base;

(ii) Short-term money market interest rates;

(iii) Longer-term maturity interest rates;

(iv) Aggregate demand, economic activity and inflation.

(i) Explain what happens (if anything) to the economy's monetary base when the Bank Negara Malaysia sells RM800 million in foreign currency to one of the banks operating in the country.

(j) Which policy is more expansionary: RM200 billion increase in government spending for goods and services or a RM200 billion cut in taxes? Explain why.

Question 10: The Keynesian and Monetarist schools of thought differ somewhat.

(d) Why is the shape of the aggregate supply curve important to the debate between the Keynesians and Monetarists?

(e) If the investment demand curve was vertical, which view of monetary policy (i.e. Keynesian and Monetarist) impact on investment spending, aggregate demand, and economic activity be more correct?

(f) Explain how they differ regarding an increase in the money supply causing inflation;