Macroeconomics Assignment: Current and Capital Account Balance

This project report delves into the world of macroeconomics, specifically examining the balance of current and capital accounts in Australia. It discusses the concept of loanable funds, foreign investment, and the trade effects of exchange rate variability. The report also provides an introduction to the policy process, including theories, concepts, and models of public policy making. With a focus on the US economy, it concludes that the country is having sufficient capital for investments under foreign markets, making them net lenders in this situation.

Introduction to
Macroeconomics

Table of Contents
INTRODUCTION...........................................................................................................................1
QUESTION 1...................................................................................................................................1
a):.................................................................................................................................................1
b):................................................................................................................................................1
c): ................................................................................................................................................2
d):................................................................................................................................................2
e): ................................................................................................................................................2
f). ................................................................................................................................................2
g). ...............................................................................................................................................3
h): ...............................................................................................................................................3
i): ................................................................................................................................................3
QUESTION 2...................................................................................................................................4
1...................................................................................................................................................4
2...................................................................................................................................................4
3...................................................................................................................................................4
QUESTION 3...................................................................................................................................6
a)..................................................................................................................................................6
b) :...............................................................................................................................................6
c)..................................................................................................................................................6
d):................................................................................................................................................7
e):.................................................................................................................................................7
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................10

INTRODUCTION
Economics is a social science that obsessed with factors that establish the production,
distribution and utilisation of products and services. While, Macroeconomics deals with total or
collective level of output, consumption, investment, employment and price position in an
economy (Wonderling, 2011). The main objective of this project report is to identified various
aspect of macroeconomics which are affecting performance and growth of a country. This
project report contain information about GDP, growth rate and economic growth of an economy.
All those economic factors those are associated with development of the country are mentioned
under this project report. Such as Balance of payment, capital account and borrowings which are
related with transformation of an economy.
QUESTION 1
a):
GDP( gross domestic product) is a term in which the money of the final products or
services are being produced in some period of time is being measured. This helps in knowing
about the economy of a country. To measure GDP is little difficult work, and it can be calculated
in two ways it can be by adding what all had being spent or by adding whatever is been earned in
the year. Wages is a term which is based on the money which is being paid to the employees by
the employers of the firm in exchange of work which are done by the employees. The wages can
be paid to the employee as per various kinds such as it can be according to the monthly basis,
hourly basis or it can be on daily basis. GFCF is those flow of value which is measured by a total
value which is a producer's of acquisition and less disposals of the fixed assets which is during
the period of accounting.
b):
Net exports are the key differentiation between a nation's entire value of exports and
entire value of imports. This could be favourable or adverse, it is calculated by way of exports or
imports. If imports are more than the exports, then the situation becomes worst. But if the
imports are less than exports, then net export become favourable. It is calculated with the help of:
Net Exports= Value of Exports-Value of Imports.
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c):
In case of Ms Smith if National income decrease by marrying her cook there is adverse
impact on the economy and smith as well. National income use to measure the financial value of
the flow of output of products and services produce in an economy over the period of time. By
the income spending on that cook it assumed that in economic welfare that expenditures on him
are manage and control with proper satisfaction (Bruno and HAILE, 2012).
d):
Particulars 2015 2016
Rice 40000 63000
Fish 6000 5200
Potatoes 10000 7000
Nominal GDP 56000 75200
GDP growth rate 34.28%
e):
Labour forces participation rate measure the percentage of the working age population
those are a part of labour force.
Calculate the labour forces:
Formula: Labour Forces participation rate: {Labor forces} *100
Working age population
64. 9: labor forces / 20429726 *100
Labour force= 13258892.174
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f).
Calculation of Employment
: 20,429,726*61.3%=12523422.038
g).
Calculation of the Unemployment rate in November 2015
October labour force was 3903200 and unemployed people were 200500. hence
employed labour was 3903200- 200500=3702700.but in the month of November, the labour
force was=3904200-201400=3702800.
Unemployment rate is calculated by using the formula:
[Number of people unemployed]X 100
Labour force
201400 * 100= 5.15%
3904200.
h):
Calculation of CPI in the current year
Cost of CPI basket at current year : (Quantity of juice * Cost) + (Quantity of cloth * Cost)
= (10 * $4) + (5 *$6)
= $40 + $ 30 = $70.
Cost of CPI at base price: (Quantity of juice * Cost) + (Quantity of cloth * Cost)
= $80 +$ 50
= $ 130.
Now, we can calculated the CPI of current year by using formula:
CPI: Cost of current year price index / Cost of base year price index *100
: $ 70 / $ 130 *100 = 53.84 %.
i):
Calculate the inflation rate in current year:
I = CPI1 - CPI0 / CPI1 * 100
= 53.84 -100/100*10
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= -46.16
There is positive impact on an economy as GDP rate of the country will remain balance
and price level will be more positive.
QUESTION 2
1.
According to the case study the criticism of Nike is fair because it overlooks the basic
rights of employees to work in health environment. They are paid below the standards which are
not sufficient for the workers to earn their livelihood. Apart from this the major concern of
removing unemployment from own country is also neglected by Nike. Instead of contributing to
the GDP of parent country, by outsourcing the labour and technology from another part of world
the growth rate gets effected (Birkland, 2014). As maximum sales are done in US it should be
given care that more job opportunities are given to own citizen as through this process
development of economy can be done.
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As there were charges against Nike that it does not provide good working condition to its
employees and also pay below the average amount it should take initiative towards raising the
workers condition so that their health is not ignored. As right to be paid and safety is a basic need
of every individual the cited company must make arrangements so that employees do not face
any discomfort. For this Nike can take steps like:
 Ensure legal minimum pay to each employee
 Eliminate forcefully overtime by workers
 make the pay stubs compulsory
 Provide non monitory benefits like medical insurance
 Strictly follow the child labour act
 Ensure that chemicals used in the production process are clearly labeled in a language
which workers can understand.
3.
Corporate social responsibility is the duty of every firm which should be followed in
order to attain the competitive advantage and to maximise the profit. By following the CSR Nike
can establish better image in the market and hence can experience growth therefore while taking
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the investment decisions management should follow its CSR duties as it also a kind of non
monitory investment which gives benefits to the firm in long run as these days even customers
also favour the establishment which full fills its duty towards the society (Volná, 2015).
The United states is likely to raise interest rate soon:
a):
Due to the variations in the interest rate of both the countries the flow of funds will be
greatly effected. As the interest rate are high in US Japan will now exchange less funds with this
country due to the fact that it will be costly for it to take funds from US. On the other hand if US
takes funds from Japan than it will be beneficial for it as they will be available at low rate due to
the lowest interest rates present in that country.
b):
Illustration 1: Loanable funds
(Source: Jason Welker, 2012)
This market is refers to supply of money. It is vertical because it determine monetary
policies those are demanded. The above graphs indicates that US interest rate is estimated to
affect loanable funds because of supply in Australia as per there interest rate. It means that if the
US increase its interest rate then most of the people chose to shift toward Australia in loanable
fund supply (Benassy, 2014). It will be influence demand, price and other household debt burden
in Australia.
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c):
In accordance to interest rate if it raises in US it does not affect must to Australia dollar
and exchange rate. Because the most of the appreciation in there price. The falling dollar help to
maintain budget bottom line. Australian Exchange rate in 2010 has floated of the dollar as the
value of dollar was maximum. It has made a huge impact on the economy of that particular
country. It exchange rate depreciated Australia lead to do more import to and if it raise then
export of goods and services are done by the country. It is done in order to maintain its current
account balance which get affect because of changes in exchange rate.
QUESTION 3
Exchange rate
a)
If the domestic country's exports becomes more popular then the direction in the demand
curve goes in the right direction. The demand curve shift to the right because of higher of the
followings:
 Utilization from enhanced consumer confidence
 Investment due to a lowering in interest rates
 Government expenditure on hospitals to frame an election pledge
 Enhanced net export expenditure as an outcome of a depreciation of sterling
The supply curve in this case is upward slopping. This means that unit costs are tends to
gain as the level of economic activity rises (Burda and Wyplosz, 2013).
b) :
If domestic country experiences a recession. Then it would affect the aggregate demand
or supply. They tends to change in the aggregate demand or supply curve.
c)
It has been assume that foreign economic growth rate always remain constant as demand
for goods are changes according to the inflation rate. When a country's inflation rate falls, the
price of its export will also decline (Current UK Inflation Rate, 2017.). As domestic interest rate
increase relative to rates in other countries. The increase in inflation rate leads to increase in
economic growth in an economy with the increase in income and consumption level of an
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individual. If inflation rate in other countries remain constant then there is balance in national
income and consumption level.
d):
In domestic countries if interest rate increase it mean there is appreciation in the
currency. It happen because saving in that country will increase the growth of an individual.
While if interest rate remain constant in other country then money supply should change in the
same directions in accordance to changes in money demand.
e):
Tourism from domestic country increase the income and revenues of that particular
country. So every company associated with tourism sectors wants to grab maximum
opportunities. In order to increase their business they use to minimise its fare values and provide
economical tour packages (Kagel and Roth, 2016). To reduce fare war among airline they are
delivering discounted scheme to its customers
Economic growth and business cycle
a):
Net value is
= [3,000,000*1+50,000*20+20*50,000+50,000*20+1*1,000,000+2*50000]=7,100,000.
b):
By using expenditure approach, Gross Domestic Product is calculated as the four
categories of spending on output. These are:
Gross private consumption spendings(C)
Gross private investment (I)
Government Purchases(G)
Net Exports (X-M)
GDP=C+I+G+NX
Here, under this question, the GDP is calculated by using expenditure approach, this is calculated
as= 15000+(4000*5)-30000-1000=$4000.
c):
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Mr. Asaud was correct as he said that the third and fourth quarter sales were less than the
sales of previous year quarters. This is true, because last year the economy was on the track but
this year it went into the recession. Henceforth his statement is correct.
Balance of payments
a):
Current account balance: It refers as difference among a national consumptions and its
investments. It is use as important sign regarding an economy health.
Calculation of current account
Import of goods and services 1757
Exports of goods and services 1430
Balance of product and services 327
Net transfer 88
Current account balance 239
b):
Capital account balance: The financial account measures the net changes in control of
foreign and local assets. A decrease in capital account state that money is going out of the
country and it suggested to nation to increase its foreign assets.
Calculation of capital account
Foreign investment in the US 1031
US investment abroad 501
530
Interest income 10
Balance of capital account 520
c):
According to the current and capital account balance US is having sufficient amount of
capital to investment under foreign market. So they seems to be Net lender in that situation. The
condition of US is favourable to make investment in order to increase growth to its economy.
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CONCLUSION
From the above project report it has been articulated that macroeconomics deal with the
development of GDP rate and economic stability of an economy. In order to maintain balance in
the country they use to implement various plan and polices to control its balance of payment and
capital and current account. The project also conclude various aspect of Australian situation
regarding balancing of there economy through using effective policies and decision.
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REFERENCES
Books and Journals:
Kagel, J.H. and Roth, A.E. Eds., 2016. The Handbook of Experimental Economics, Volume 2:
The Handbook of Experimental Economics. Princeton university press.
Burda, M. and Wyplosz, C., 2013. Macroeconomics: a European text. Oxford university press.
Benassy, J.P., 2014. Macroeconomics: an introduction to the non-Walrasian approach. Academic
Press.
Volná, B., 2015. Existence of chaos in the plane R2 and its application in macroeconomics.
Applied Mathematics and Computation.258. pp.237-266.
Birkland, T.A., 2014. An introduction to the policy process: Theories, concepts and models of
public policy making. Routledge.
Bruno, C.O. and HAILE, M.G., 2012. An Introduction to Meta-Regression Analysis (MRA):
Using the Example of the Trade Effects of Exchange Rate Variability. Macroeconomics
and Beyond: Essays in Honour of Wim Meeusen, p.280.
Wonderling, D., 2011. Introduction to health economics. McGraw-Hill Education (UK).
Online
Current UK Inflation Rate, 2017. [Online]. Available through:
<https://www.rateinflation.com/inflation-rate/uk-inflation-rate> . [Accessed on 7th
September 2017].
Jason Welker, 2012. [Online]. Available through:
<http://welkerswikinomics.com/blog/2012/05/08/loanable-funds-vs-money-market-
whats-the-difference/> .[Accessed on 7th September 2017].
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