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BUS103 Introduction to Macroeconomics

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Added on  2020-05-28

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Measuring GDP and Economic Growth The national accounts of Parchment Paradise are kept on (you guessed it) parchment.  Joseph Stiglitz, at Columbia, advocates a “green net national product” that takes into account the depletion of natural resources. Others want to include happiness in the measure. These alternative benchmarks have merit but can they be measured with anything like the frequency, reliability, and impartiality of GDP? Exchange Rate and Balance of Payments Colombia is the world’s biggest producer of roses.

BUS103 Introduction to Macroeconomics

   Added on 2020-05-28

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Running Head: BUS103 INTRODUCTION TO MACROECONOMICS 1BUS103 Introduction to MacroeconomicsName Student Number Institution Date Page 1
BUS103 Introduction to Macroeconomics_1
BUS103 INTRODUCTION TO MACROECONOMICS2Question 1 – 20 marksMeasuring GDP and Economic Growth The national accounts of Parchment Paradise are kept on (you guessed it) parchment. A fire destroys the statistics office. The accounts are now incomplete but they contain the following data:GDP (income approach): $2,900Consumption expenditure: $2,000Indirect taxes less subsidies: $100Gross income at factor cost: $2,800Investment: $800Government expenditure: $400Wages: $2,000Net exports: –$200a.Calculate GDP using the expenditure approach.To begin with, the expenditure approach of calculating GDP incorporates the total sum of money used to the purchase goods and services within an economy. It is calculated as Y = C + I + G + (X - M) in the above case it is given as;Y = $2000 + $800 + $400 - $200Y = $3000b.Calculate the sum of total income less wages and the statistical discrepancy.The total national income is given by the sum of all wages, rents, interests, and profits.As such, the total national income is given by gross income at factor cost + wages Total income = $2800 + $2000 = $4800Statistical discrepancy, on the other hand, is the difference between the GDPs calculated according to the income approach and the expenditure approach and then dividing the figure by two as illustrated below:Statistical Discrepancy = $3000−$29002 = $1002 = $50As such the total income less wages and the statistical discrepancy is given by$4800 - $2000 - $50 = $2750
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BUS103 INTRODUCTION TO MACROECONOMICS3The table below provides data on the economy of Maritime Republic that produces only fish and crabs.Quantities20152016Fish1,000 tonnes1,100 tonnesCrabs 500 tonnes 525 tonnesPricesFish$20 a tonne$30 a tonneCrabs$10 a tonne $8 a tonnec. Calculate Maritime Republic’s nominal GDP in 2015 and 2016.Production20152016Quantity*PriceTotalQuantity*PriceTotalFish1,000 tonnes*$20$200001,100 tonnes*$30$33000Crabs 500 tonnes*$10$5000 525 tonnes*$8$4200Nominal GDP $2500037200
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BUS103 INTRODUCTION TO MACROECONOMICS4d.Calculate Maritime Republic’s chain volume measure of real GDP in 2016 expressed in 2015 dollars.Chain Volume Measure (CVM) of real GDP = ∑pn−1QnFor this case, CVM of real GDP = 1100tonnes * $20 +525tonnes * $10= $27250Totally GrossGDP has proved useful in tracking both short-term fluctuations and long-run growth.Which isn’t to say GDP doesn’t miss some things. Amartya Sen, at Harvard, helpedcreate the United Nations’ Human Development Index, which combines health andeducation data with per capita GDP to give a better measure of the wealth of nations.Joseph Stiglitz, at Columbia, advocates a “green net national product” that takes intoaccount the depletion of natural resources. Others want to include happiness in themeasure. These alternative benchmarks have merit but can they be measured withanything like the frequency, reliability and impartiality of GDP?Source: Time, 21 April 2008e.Explain the factors that the news clip identifies as limiting the usefulness of GDP as a measure of economic welfare.a.According to the clip, GDP does not factor in the contribution of a country’s human capital to the economy based on the human health status and the level of education.Quantities20152016Fish1,000 tonnes1,100 tonnesCrabs 500 tonnes 525 tonnesPricesFish$20 a tonne$20 a tonneCrabs$10 a tonne$10 a tonne
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BUS103 INTRODUCTION TO MACROECONOMICS5b.The GDP approach also fails to factor in externalities such as the depletion of the natural resources.c.It also fails to measure the happiness levels in the economy, which would be a major contributor to the human welfare. d.It does not describe the wealth distribution f.What are the challenges involved in trying to incorporate measurements of those factors in an effort to better measure economic welfare?a.The human development index fails to consider differences in wealth distribution. Also some measures seem very arbitrary, especially when there are varying measures of health and education. b.With regards to the green net national product, it is difficult to develop a standardized market value for some goods. For instance, the non-traded goods have no market value. Also, measuring the depletion of some resources and attaching a monetary value can be very difficult.c.With regards to measuring happiness and factoring it in the gross national product, it is difficult to standardize the happiness level among citizens. From an economic perspective, happiness is equated to the satisfaction derived from consumption. As such, the difference in consumer preferences leads to varyingsatisfaction level and thus the happiness level. g.What does the ranking of Australia in the Human Development Index imply about the levels of health and education relative to other nations?
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BUS103 INTRODUCTION TO MACROECONOMICS6In 2015, Australia’s Human Development Index was 0.939, which placed it at the second position out of one hundred and eighty-eight countries. This implies that the health rankings of the nations were above average. In fact, life expectancy at birth increased by about six years. More so, the education level in the citizens increased evidenced by the one and half years increase in the average schooling years and the increased expected years of schooling by three years. This implies that the country has among the healthiest and educated population relative to other countries. Question 2 – 20 marksJobs and Inflation Australian Bureau of Statistics reported the following data for 2015:Labour force participation rate: 69.6 per cent Working-age population (in thousands people): 18,429,726Employment-to-population ratio: 65.2(a)Calculate the labour force. (2 marks)Labor force = Labor force participation rate * Working- age population = .696*18,429,726
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