Economic Performance and Investment Proposals

This assignment focuses on analyzing the economic performance of a hypothetical scenario presented in Table 1. Students are tasked with evaluating two investment proposals (A & B) based on their impact on GDP. The analysis requires calculating key economic indicators, such as the Marginal Propensity to Consume and the required investment amount to achieve specific GDP targets. Students must justify their recommendations for each proposal based on the presented data.

Assignment #1 (Spring 2017)
ANSWER-SHEET
1. Provide a summary of the economic performance of the country - in the Table
below. (6 Marks)
WITHOUT
INVESTMEN
T
WITH
INVESTMENT
B A
GDP (in billion dollars)
2007 2012 2017 2022
GDP Deflator 100 76 100 124
Nominal GDP Insufficient
Data 646 1534
1477
Real (2017 prices) Insufficient
Data 850 1477
1237
798 1425 1185
Real (2017 prices) Insufficient
Data
Real (2017 prices) - - - 1093

Notes:
1) Base year for GDP Deflators is 2017.
2) All entries in this table must be rounded-off to the nearest zeros, i.e., no decimal points.
2. Which proposal will you recommend? (2 Marks)

Why? Because with proposal A , 1185< 1237 and that with proposal B 1093<
1237._________________________________________________________
____________________________________________________ (no more than 10 words)
3. Will you recommendation (as in Question 2) change if for proposal B, $150bn worth of
output is not sold to other firms as intermediate inputs and is instead sold to the final users?
(2 Marks)
Yes  No
Why? Because then real GDP would be 1214<1237
__________________________________________________________
____________________________________________________ (no more than 10 words)
Assign 1-S17 – answer template
4. Is the proposal (in this assignment) to invest in infrastructure based on Keynesian or
Neo-classical reasoning? (2 Marks)
Keynesian Neo-classical

Either Neither
Please provide reasoning in support of your answer ____________In the economy there is
involvement of both private market and government either equal or not
equal.____________________________________________
____________________________________________________(no more than 10 words)
5. Will you recommendation (as in Question 2) change if, say, due to unforeseen Global
Financial Crises, the economy experiences a severe deflation and - as a result – the GDP
Deflator for 2022 becomes 10? (2 Marks)
Yes No
Why? Because Real GDP with proposal B 13550 >1237
_________________________________________________
____________________________________________________(no more than 10 words)
A B Either Neither


6. Will your recommendation (as in Question 2) change if, for Proposal A, people saved 50%
of the annual increases in their incomes as noted in Table 1 of the assignment? (3 Marks)
Yes No
Why? Because the multiplier effect then will be positive.
________________________________________________________
____________________________________________________(no more than 10 words)
7. What value of ‘Marginal Propensity to Consume’ is implicit in your calculations for
proposal B? (3 Marks)
Please present your calculations here? (no more than two steps of calculations).
= 1.5
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
1.5

8. How much investment (expressed in 2017 dollars) will be needed (currently investment is
$20bn, expressed in 2012 dollars) in order to make the GDP of Proposal A, in 2022, to be t
$200bn more than ‘without investment’ GDP in 2022? (3 Marks)
$bn
Please present your calculations here? (no more than two steps of calculations).
=- 100
In addition to the above noted marks, upto 2 marks could be awarded for succinct and cogent
discussion.
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-100