BUS103 Introduction to Macroeconomics

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Running Head: BUS103 INTRODUCTION TO MACROECONOMICS1BUS103 Introduction to MacroeconomicsNameStudent NumberInstitutionDatePage1
BUS103 INTRODUCTION TO MACROECONOMICS2Question 1 – 20 marksMeasuring GDP and Economic GrowthThe national accounts of Parchment Paradise are kept on (you guessed it) parchment. A firedestroys the statistics office. The accounts are now incomplete but they contain the followingdata: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 ofmoney used to the purchase goods and services within an economy. It is calculated asY = 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 bygross income at factor cost + wagesTotal income =$2800 + $2000= $4800Statistical discrepancy, on the other hand, is the difference between the GDPs calculatedaccording to the income approach and the expenditure approach and then dividing thefigure 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
BUS103 INTRODUCTION TO MACROECONOMICS3The table below provides data on the economy of Maritime Republic that produces only fishand crabs.Quantities20152016Fish1,000 tonnes1,100 tonnesCrabs500 tonnes525 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$33000Crabs500 tonnes*$10$5000525 tonnes*$8$4200NominalGDP$2500037200
BUS103 INTRODUCTION TO MACROECONOMICS4d.Calculate Maritime Republic’s chain volume measure of real GDPin 2016expressed in 2015 dollars.Chain Volume Measure (CVM) of real GDP =pn1QnFor 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 GDPas a measure of economic welfare.a.According to the clip, GDP does not factor in the contribution of a country’shuman capital to the economy based on the human health status and the levelof education.Quantities20152016Fish1,000 tonnes1,100 tonnesCrabs500 tonnes525 tonnesPricesFish$20 a tonne$20 a tonneCrabs$10 a tonne$10 a tonne
BUS103 INTRODUCTION TO MACROECONOMICS5b.The GDP approach also fails to factor in externalities such as the depletion ofthe natural resources.c.It also fails to measure the happiness levels in the economy, which would be amajor contributor to the human welfare.d.It does not describe the wealth distributionf.What are the challenges involved in trying to incorporate measurements of thosefactors in an effort to better measure economic welfare?a.The human development index fails to consider differences in wealthdistribution. Also some measures seem very arbitrary, especially when thereare varying measures of health and education.b.With regards to the green net national product, it is difficult to develop astandardized market value for some goods. For instance, the non-traded goodshave no market value. Also, measuring the depletion of some resources andattaching a monetary value can be very difficult.c.With regards to measuring happiness and factoring it in the gross nationalproduct, it is difficult to standardize the happiness level among citizens. Froman economic perspective, happiness is equated to the satisfaction derived fromconsumption. As such, the difference in consumer preferences leads to varyingsatisfaction level and thus the happiness level.g.What does the ranking ofAustraliain the Human Development Index implyabout the levels of health and education relative to other nations?
BUS103 INTRODUCTION TO MACROECONOMICS6In 2015, Australia’s Human Development Index was 0.939, which placed it at the secondposition out of one hundred and eighty-eight countries. This implies that the healthrankings of the nations were above average. In fact, life expectancy at birth increased byabout six years. More so, the education level in the citizens increased evidenced by theone and half years increase in the average schooling years and the increased expectedyears of schooling by three years. This implies that the country has among the healthiestand educated population relative to other countries.Question 2 – 20 marksJobs and InflationAustralian Bureau of Statistics reported the following data for 2015:Labour force participation rate:69.6per centWorking-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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