MACROECONOMIC SASSIGNMENT

QUESTION 1

Suppose the following table shows some national accounting data for a given year for some particular country.

Table 1 national accounting data

(a) Using the data given in Table 1, calculate the country's gross domestic product (GDP),net domestic product (NDP), gross national product (GNP) and net national product (NNP)

(b) Using the data given in Table 1, compute net export. Is there a trade surplus or deficit in its current account?

(c) Explain the relationship between national saving and current account balance. How and why the balance of payment must be balanced. Use examples to illustrate.

QUESTION 2

(a) What do you call a macroeconomic indicator that typically begins to change its direction of growth before an economy enters a new business cycle phase? What do you call one that typically switches into a new phase at around the same time as the business cycle switches into a new phase? List at least three indicators for each of the two categories.

(b) If actual real GDP moves from being equal to potential GDP to being less than potential real GDP, does the GDP gap become positive or negative? What would you say might be the impact on unemployment from such a movement?

(c) In recent years, a number of prominent economists have argued that if a larger share of national output were devoted to investment, the result would be rapid productivity growth and rising living standard. Do you agree with this? Explain using some economic models you have learnt.

QUESTION 3

(a) What is the relationship of frictional, structural, seasonal and cyclical unemployment to the full-employment rate of unemployment (alternatively known as the natural rate of unemployment)?

(b) If, over two periods, the unemployment rate had reduced from 6.5 per cent to 5.5 per cent and the measured labour underutilisation rate had reduced from 14 per cent to 12 per cent, has the underemployment rate increased or decreased and by what percentage?

QUESTION 4

(a) Explain why the aggregate demand curve is downward-sloping. How is your explanation different from the explanation for a downward-sloping demand curve for an individual product?

(b) How would you shift the aggregative demand curve to represent each of the following changes in economic conditions?

I. Consumers expect an economic upturn.

II. A new government is elected and business and business managers become more uncertain about future business prospects under the new government.

III. In order to reduce the budget deficit, the federal government decreases spending on a range of government payments to families, individuals and businesses.

IV. Australia's exchange rate appreciates (increase in value relative to other currencies) significantly for an extended period.

(c) How would you shift the aggregative supply curve to represent each of the following changes in economic conditions?

I. The price of oil increases due to oil supplies being disrupted by hostilities in major oil country suppliers.

II. Due to less than expected wage demands, businesses find their production costs are lower than expected.

III. Electricity companies switch some generation capacity to more expensive renewable energy sources and the average price of electricity increases.

IV. The federal government moves to abolish a range of ‘red type' business regulations which had been quite expensive for firms to comply with.