Bachelor of Applied Management

This document provides answers to various sections and topics of the Bachelor of Applied Management course. It covers topics such as Consumer Price Index, GDP calculation, effects of migration on AD and AS, expansionary monetary and fiscal policies, comparative advantage, balance of payments, and factors affecting the demand for NZ dollar.

Running head: BACHELOR OF APPLIED MANAGEMENT
Bachelor of Applied Management
Name of the Student
Name of the University
Author Note

1BACHELOR OF APPLIED MANAGEMENT
Table of Contents
Section A....................................................................................................................................2
Answer 1................................................................................................................................2
Answer 2................................................................................................................................2
Section B....................................................................................................................................3
Answer 1................................................................................................................................3
Answer 2................................................................................................................................4
Answer 3................................................................................................................................6
Section C....................................................................................................................................7
Answer 1................................................................................................................................7
Answer 2................................................................................................................................7
Answer 3................................................................................................................................8
Section D....................................................................................................................................8
Answer 1................................................................................................................................8
Answer 2................................................................................................................................9
Answer 3................................................................................................................................9
Answer 4..............................................................................................................................10
References................................................................................................................................12

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Section A
Answer 1
Consumer Price Index (CPI) in New Zealand measures the change in price of a given basket
of goods and services the country’s individuals buy (stats.govt.nz, 2019).
CPI for current year is calculated as
CPI= Price of desired basket ∈current year
Price of desired basket ∈base year × 100
Answer 2
a) GDP calculation
Expenditure approach
GDP=Consumtion+ Investment +Government Expenditure+Net Exports
¿ , GDP=23100+ 9500+6200+(13300−15100)
¿ , GDP=37000
Income approach
GDP=National Income+ Net Factor Payments+ Depreciation+ ( Indirect Taxes−Subsidies ) +¿
¿ , GDP=18900+15700+ ( 4500−600 ) −1300−200
¿ , GDP=37000
b) The National Income (GDP) figures fails to capture the true economic activity of a
country because it does not include the transactions occur in informal market. It does
not capture level of existing income inequality in the country (Goodwin et al., 2015).
c) Nominal GDP measures the values of goods and services in current year price. This
represents monetary values of output current year market price. Real GDP in contrast
estimates values of output at fixed base year prices. This thus gives an inflation-
adjusted measure of national estimates. To assess GDP both in current year prices and
in inflation adjusted manner GDP is computed both in nominal and real terms.
d) Real GDP per capita is the inflation adjusted total economic output of a country
produced per individual (Mankiw, 2014). It shows the welfare of an individual of a
country mainly standard of living.

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e) Two alternative measures of GDP are Human Development Index (HDI) and Genuine
Progress Index (GPI). HDI includes income, health and educational factors whereas
GPI measure the welfare aspects of country.
Section B
Answer 1
Figure 1: Effect of migration on AD and AS
With increasing net migration in New Zealand, the supply of labours in the country
will increase. This will result in increased demand in the economy; as a result, AD curve will
shift to right from AD1 to AD2 as shown in Figure 1. On the other hand, the increased labour
force will be employed over time and adds to productivity of the country, thereby increase the
output supply. Therefore, AS curve will shift to the right from AS1 to AS2. Therefore,
aggregate output in New Zealand economy increases in response to higher migration.
Answer 2
a) A fall in business confidence
AS2
AS1
Q2
Price Level
Output
AD1
AD22
P
Q1
AS1
Price Level
AD1

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Figure 2: Effect of fall in business confidence
Fall in business confidence decreases real GDP, decreases inflation, and raises
unemployment rate.
b) Significant increase in household savings
Figure 3: Effect of increased savings
Significant increase in household savings decreases the aggregate demand and creates
deflationary effect and price level falls (Agenor & Montiel, 2015). The contraction in
economic activity increases unemployment rate.
c) Increase in business confidence
Q1 Output
AD2
P1
Q2
P2
AS1
Q1
Price Level
Output
AD2
AD1
P1
P2
Q2
AS2
AS1
Price Level AD2
AD1

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Figure 4: Effect of increase business confidence
With increase in business confidence, investment will rise and as a result,
employment and economic output (Real GDP) increases. Initially, the supply increases
resulting in output increase from Q1 to Q2 and price level falls from P1 to P2 as shown in the
figure. Thus, consumption will rise and result in demand increase. Therefore, both price level
and output increases again from P2 to P1 and Q2 to Q3 respectively.
Q1 OutputQ2
P2
Q3

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Answer 3
i)
Figure 5: Recessionary Gap
In Figure 5, Q* is the potential national income and Qe is the existing national
income. Q* is lesser than Qe. Thus, there is a recessionary gap which is given by difference
between Q* and Qe.
ii)
AS
Qe
Price Level
Output
AD
P
Q*
Potential National Income
Recessionary Gap
AS
Q2
Price Level
Output
AD
P
Qe
P2
AD1

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Figure 6: Effect of an increase in transfer payment
An increase in transfer payment increases the aggregate demand and shifts the
demand curve rightward to AD2. As a result, price level increase to P2 and GDP moves
towards potential GDP.
Section C
Answer 1
New Zealand is experiencing faster economic growth in the property market, foreign
buyers are investing in the properties, and thus net migration is increasing. Thus, there will be
inflation due to increased capital inflow in the country. Increasing net migration will create
unemployment problem after a certain period if it is not controlled. Apart from these
disadvantages, income of individuals increases and standard of living improves.
Answer 2
Figure 7: Expansionary Monetary Policy
The Reserve Bank of New Zealand is the apex financial regulatory body. It controls
the financial sector and economy of the country by its monetary policies (income side). From
the article, it is evident that The Reserve bank of New Zealand has cut the Official Cash Rate
by 25 basis points to 2.25. The monetary policy will have an expansionary effect on the
economy as the banks will be able to lend more and there will be more money in the hands of
people. Therefore spending and consumption will rise and aggregate demand increase
causing rightward shift of AD curve along with increase in price level (Uribe & Schmitt-
AS
Q1
Price Level
Output
AD1
P1
Q2
P2
AD2

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Grohe, 2017). Thus, the new macroeconomic equilibrium is at P2Q2. Hence, there is a
growth output growth. Thus, the policy is an expansionary monetary policy.
Answer 3
Figure 8: Expansionary Fiscal Policy
The government of New Zealand cuts tax and thereby increases individuals’
disposable income. This kind of policy of the government is known as fiscal policy. Fiscal
policy is the instrument of government to control economy. In this case, the policy is an
expansionary fiscal policy because increase in disposable income increases spending and
consumption (Heijdra, 2017). As a result, aggregate demand increase along with price level.
This can be seen in Figure 8, both output and price level has increased from Q1 to Q2 and P1
to P2 respectively due to rightward shift of AD curve from AD1 to AD2.
Section D
Answer 1
Opportunity cost
Wool Fish
NZ 1.5 0.67
Australia 0.6 1.67
AS
Q1
Price Level
Output
AD1
P1
Q2
P2
AD2

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a) In order to produce 1 unit of wool, New Zealand needs to sacrifice 1.5 units of fish
while Australia needs to forgo 0.6 unit of Fish. Australia therefore has a comparative
advantage of producing wool because of lower opportunity cost of wool production.
b) In order to produce 1 unit of Fish, New Zealand needs to sacrifice 0.67 units of Wool
while Australia needs to forgo 1.67 unit of Wool. New Zealand therefore has a
comparative advantage of producing fish because it has a lower opportunity cost of
producing fish.
c) It is a good idea for New Zealand and Australia to specialize in gods in which they
have comparative advantage. Under free trade Australia should export wool and
import fish while NZ should export fish and import wool. If countries specialize in
this way then production of both wool and fish can be done in an efficient manner
resulting in a higher production of both goods.
d) The openness of China to NZ’s chilled meat industry adversely affects consumers in
NZ and producers in China. NZ consumers will now have less availability of chilled
meat for consumption as producer now more interested to export their products into
China’s market and get premium price. Produces in New Zealand in contrast suffers
due to increased competition with NZ’s producers.
Answer 2
a) In 2021, if New Zealand hosts Amerrica’s Cup (yatching) then there will be large
amount of foreign capital inflow in the country and there will be surplus in current
account.
b) New Zealand is very far from other countries in the world and hence many countries
are not interested to trade with it due to transport cost and other associated risks.
Thus, less trade means less capital inflow, which adversely affects current account.
c) New Zealand property firms are taking investments from foreign investors to improve
the capital account of balance of payment.
d) In New Zealand if the foreign investments increase significantly then there will be
heavy cash flow causing current account to improve whereas it will adversely affect
the financial account due to increased liability.
Answer 3
a) NZ dollar has depreciated in comparison to US, thus for US importers it is beneficial
to import from NZ but the case is opposite for exporters. However, the case is
completely reverse for Australia. As NZ dollar appreciated against AUD, exporter of

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NZ suffers a loss while importers gain, as imports from Australia are available at a
relatively cheaper rate. The situation is reverse in case of exporter and importers of
Australia.
b) For a strong NZ dollar, education in foreign countries is cheaper for NZ students
when NZ dollar is strong. Conversely, for foreign students education is expensive in
NZ.
Answer 4
a)
The economic recession in USA by adversely affecting export volume of New Zealand to
USA and other markets lower the demand for New Zealand dollar. This shifts the demand
curve for NZ dollar to the left lowering the price of NZ dollar and reduces the equilibrium
quantity of NZ dollar traded in the market (Johnson, 2017).
Figure 9: Impact of USA’s recession
b)
An increase in interest rate in New Zealand relative to its trading partners encourages
investors to invest in New Zealand. This raises the demand for New Zealand dollar shifting
the demand curve to the right (Gottheil, 2013). In the foreign exchange market, such an event
increases both price of NZ dollar and quantity traded in the market.

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Figure 10: Impact of increase in interest rate
c)
Successful expansion of import competing industries in New Zealand and success in export
market increase the demand for NZ dollar. This shifts the demand curve of NZ dollar to the
raising price and equilibrium quantity of NZ dollar in the market (Terra, 2015).
Figure 11: Impact of expansion of NZ’s industries

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References
Agenor, P. R., & Montiel, P. J. (2015). Development macroeconomics. Princeton University
Press.
Goodwin, N., Harris, J. M., Nelson, J. A., Roach, B., & Torras, M. (2015). Macroeconomics
in context. Routledge.
Gottheil, F. M. (2013). Principles of macroeconomics. Nelson Education.
Heijdra, B. J. (2017). Foundations of modern macroeconomics. Oxford university press.
Johnson, H. G. (2017). Macroeconomics and monetary theory. Routledge.
Laursen, K. (2015). Revealed comparative advantage and the alternatives as measures of
international specialization. Eurasian Business Review, 5(1), 99-115.
Mankiw, N. G. (2014). Principles of economics. Cengage Learning.
stats.govt.nz. (2019). Consumers price index. Retrieved from
https://www.stats.govt.nz/topics/consumers-price-indexhttps://www.stats.govt.nz/
topics/consumers-price-index
Terra, C. (2015). Principles of International Finance and Open Economy Macroeconomics:
Theories, Applications, and Policies. Academic Press.
Uribe, M., & Schmitt-Grohe, S. (2017). Open economy macroeconomics. Princeton
University Press.