Macroeconomics and Economic Indicators

This solved assignment focuses on understanding key macroeconomic concepts like injections, leakages, GDP, and inflation. It features various scenarios requiring analysis of how changes in these factors affect the economy. The assignment includes a section dedicated to monetary policy and its role in reducing inflation.

Running head: BUSINESS ECONOMICS
Business Economics
Name of the Students
Name of the University
Author note

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Table of Contents
Answer9...........................................................................................................................................2
Answer (a) GDP by Income method...........................................................................................2
Answer (b) GDP by expenditure method....................................................................................3
Answer (c) GNE..........................................................................................................................3
Answer (d) NDP..........................................................................................................................3
Answer (e) NDP better measurement then GDP.........................................................................4
Answer (f) GNP...........................................................................................................................4
Answer (g) NNP..........................................................................................................................4
Answer (h) Current Account Balance..........................................................................................4
Answer (i) Gross National Savings.............................................................................................5
Answer (j)....................................................................................................................................5
Answer (k)...................................................................................................................................6
Answer (l)....................................................................................................................................6
Answer 10........................................................................................................................................7
Answer (a)...................................................................................................................................7
Answer (b)...................................................................................................................................7
Answer (c)...................................................................................................................................7
Answer 11........................................................................................................................................8
Answer (a)...................................................................................................................................8

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Answer (b).................................................................................................................................10
Answer 12......................................................................................................................................10
Answer (a).................................................................................................................................10
Answer (b).................................................................................................................................10
Answer (c).................................................................................................................................11
Answer (d).................................................................................................................................11
Answer 13......................................................................................................................................12
Answer (a).................................................................................................................................12
Answer (b).................................................................................................................................13
Answer (c).................................................................................................................................14
Answer (d).................................................................................................................................15
Answer 14......................................................................................................................................15
Answer (a).................................................................................................................................15
Answer (b).................................................................................................................................16
Answer (c).................................................................................................................................16
Answer 15......................................................................................................................................16
Answer 16......................................................................................................................................17
References......................................................................................................................................19

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Answer9
Answer (a) GDP by Income method
GDP= Total national income+ indirect business taxes+ depreciation+ net foreign income
(Petroff, 2013)
Total national income= Sum of all wages, rents, interest and profit
Total national income= 1687+ 482+ 2651
Total national income= $4820billion
GDP= 4820+0+320+0
Indirect business taxes = 0
Depreciation= 320
Net foreign income= 0
GDP= $5140 billion

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Answer (b) GDP by expenditure method
GDP= C+I+G+NX (Petroff, 2013)
C= consumption
I= investment
G= government purchases
Net Export= Export-Import
GDP= 3115+ (320+785)+ (585+210)+ (690-565)
GDP= 3115+ 1105+ 795+125
GDPMP= $5140 billion
Answer (c) GNE
GNE= C+I+G+IM
IM= import expenditure
GNE= 3115+ 1105+795+565
GNE= $5580 billion
Answer (d) NDP
NDP= GDP-Depreciation
NDP= 5140-320
NDP= $4820 billion

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Answer (e) NDP better measurement then GDP
It is accepted that Net Domestic Product is a better measurement than Gross Domestic product
because it has the ability to control depreciation. It is necessary to control depreciation in real
world because the capital that is formed has some rate of usage and depreciate with time.
However, GNP is also regarded as a bad measure because depreciation distorts its calculation
and depreciation is a non-measurable variable. However, the deduction that it calculates helps
the economy to know its performance over the year and the improvement that it should take in
future (Gwartney, Stroup & Clark, 2014).
Answer (f) GNP
GNP= GDP+ Net income inflow from abroad-Net income outflow to foreign countries
GNP= 5140+ 0-34
GNP= $5106 billion
Answer (g) NNP
NNP= GNP- Depreciation
NNP= 5106- 320
NNP= $4786 billion
Answer (h) Current Account Balance
Current Account Balance= export-import+ Net income+ Net Current Transfers
CAB= 690-565+ (-34)+0
CAB= $91 billion

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Answer (i) Gross National Savings
Gross national savings= Y-C-G (Tucker, 2010)
Y= GDP
C= consumption
G= Government spending
Gross national savings= 5140-3115-(210+585)
Gross national savings= 5140-3115-795
Gross national savings= $1230 billion
Answer (j)
Tax revenues= $17 billion
National savings= private savings- public savings
National savings= (Y-T-TR-C)+(T-G-TR)
National savings= (5140-17-0-3115)+(17-795-0)
National savings= (2008-778)
National savings= $1230 billion
This shows that with a tax income of $17 billion the value of national savings is same as above.
Answer (k)
MPCd= ΔC/ΔY (Tucker, 2010)

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0.63= ΔC/4873
ΔC= 4873*0.63
ΔC= $3069.99 billion
Thus, the domestic consumption falls with a change in marginal propensity to
consume(Gwartney, Stroup & Clark, 2014).
Answer (l)
GDP= C+I+G+NX (Heijdra, 2017)
New export= 690+4= $694 billion
New private sector investment= 785- 3= $782 billion
New Government consumption=584-3= $581 billion
New government investment= 210+4= $214 billion
GDP= 3115+320+782+581+214+(694-565)
GDP= $5141 billion
This shows that GDP increases by $1 billion.

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Answer 10
Answer (a)
i. The windscreen that is bought by the motor vehicle spare parts supplier is an intermediate
good because the motor vehicle spare part supplier will sell it further to car companies to
be used in cars and is not used by the end consumers directly.
ii. Bulldozer is a final good because it is used directly by the end user such as the
construction companies. This is because final goods are those goods that are ready to be
consumed by the end user.
iii. The housing cleaning service that a family purchases is a final good because they are the
end user of it and will use the service directly fir cleaning their house. Thus, it complies
with the definition given for final goods.
iv. Coking coal is intermediate goods because it is widely used in steel production and it is
one of its essential ingredients.
Answer (b)
The GDP of the economy is $870 billionasit is the total amount of goods and services that
the economy produces by the residents of the country. This shows the it abides by the definition
of Gross Domestic products that states that it is the dollar value of all goods and services that the
country produces over a specific period of time (Mankiw, 2014).
Answer (c)
The definition of final goods states that it is the goods that is directly used by end user for
consumption. The new truck that is owned by a mining company is a final good because the
company is the end user for the truck even though it assists in further production. The truck is

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not the intermediate good that helps in digging of mines. It is used as a final good for transferring
goods. Thus for the company the truck is a final good.
The value of the truck will be added in the GDP of the country because it is a final good.
On the other hand, the goods that the truck is carrying from the mining industry are intermediate
goods and will be used for further production for production of energy or other products. GDP
adds the value of all final goods and thus value of truck is added (Mankiw, 2014).
Answer 11
Answer (a)
Figure1: Cost-Push inflation
Source:

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Figure 2: Demand-Pull inflation
Source:
The above diagram shows the two types of inflation such as cost-push inflation and demand pull
inflation. The main difference between both the types of inflation is that one is caused due to a
push or increase in prices and the other is caused by an increase in demand. The cost-push
inflation is the one that leads to increase in price level for goods and services in an economy due
to fall in aggregate supply after an increase in cost of production. On the other hand, in demand-
pull inflation there is an increase in price due to increase in demand. One is due to producers and
the other is due to consumers(Gwartney, Stroup & Clark, 2014).

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Answer (b)
Cost-pull inflation is caused due to decrease in supply of goods due to increase in cost of
production. Demand remaining constant, supply falls below demand that causes increase in
price. Cost-pull inflation is caused due to changes on producer side (Jain, 2015).
On the other hand, demand-pull inflation is caused because with a constant aggregate
supply there is an increase in demand causing price to rise. This happens when the demand
exceeds supply and any changes from consumer’s side (Acquah-Sam, 2017).
Answer 12
Answer (a)
Macroeconomic policy can be formed for reducing unemployment in a country that could
curb the demand such as fiscal and monetary policy. However, it has been stated that a measured
zero unemployment is impossible to reach in any economy with any possible this claim was put
forward by the Phillips Curve that stated that with an increase in inflation there is a decrease in
unemployment(Orlandi, 2014). However, neither a point of zero unemployment is reached
neither there will be a zero inflation scenario. Thus, no macroeconomics policy will create zero
unemployment rate (Layton, Robinson, & Tucker, 2011).
Answer (b)
According to the classical economist, it is seen that the rate of unemployment reduces
below the natural level in the short run. However, in the long-run it is seen that the
unemployment rate returns to its natural rate. This also causes an increase in the inflation rate in
the economy. This is because long run does not have any trade-off (Boyes,& Melvin,2013).

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Answer (c)
Structural unemployment is termed as an unemployment that is caused in the long-run. It
is a type of unemployment that is caused when the people are willing to work in an economy;
however, the companies lacked the inability of offering jobs (Quercia, Pennington-Cross & Tian,
2016).
On the other hand, cyclical unemployment is caused when there is a fluctuation in the
economy or any downturn. Suchdownturns cause loss of jobs and unemployment rises in the
economy for that period (Orlandi, 2014).
Policy maker should be concerned about structural unemployment because it might adversely
affect the purchasing power and total GDP of the company. Cyclical unemployment should also
be curbed as it might increase unemployment rate extremely in the economy (Diamond, 2013).
Answer (d)
The major difference between both the monetarist and Keynesian theory of monetary
policy is that monetarist believes in implementing tight monetary policy and Keynesian believes
in expansionary monetary policy. Such thing lies on the assumption that monetarists believe in
control of money supply and Keynesian believes that downturns in the economy can be resolved
by increasing the purchasing power of the consumers (Mankiw, (2014).

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Answer 13
Answer (a)
Figure 3: Increase in Aggregate Demand
Source: author’s creation
A decline in marketing activity will not allow the company to increase its brand
recognition and advertise its product and thus leads to a decrease in aggregate demand. This in
turns leads to fall in prices and decrease in the GDP of the economy (Mankiw, 2014).

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Answer (b)
Figure 3: Increase in Aggregate Demand
Source: author’s creation
An increase in import in the nation will lead to an increase in supply of goods in the
country due to increase in the number of foreign goods. This will cause a fall in price due to
excess supply and an increase in the GDP of the nation(Mankiw, 2014).

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Answer (c)
Figure 3: Increase in Aggregate Demand
Source: author’s creation
A destruction in economy’s capital stock leads to fall in the supply of the nation because
there will be less factors available for production purpose. This causes an increase in price level
due to excess demand in the market and a decrease in the GDP of the nation (Benhabib, Wang,
& Wen, 2015).

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Answer (d)
Figure 3: Increase in Aggregate Demand
Source: author’s creation
Decrease in personal income tax causes more disposable income in the hand of the people
causing an increase in purchasing power and demand for goods. This in turn causes and increase
in price due to excess demand and increase in GDP of the nation(Palley, 2014).
Answer 14
Answer (a)
The major advantages of using Consumer Price Index are that it is one fo the most
quantifiable method of measuring prices. CPI allows to measure large numbers in single group,
this makes it a legit indicator(Gwartney, Stroup & Clark, 2014).

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The disadvantage is that CPI does not considers the increase in price due to improvement
in quality of the product. Moreover, new products enter markets continuously making it difficult
to calculate using the CPI method.
Answer (b)
There are different effect of increase in price on different kind of people. This is seen
because the poor people lose out more during inflation as the money they have buy less goods
after the increase in price. On the other hand, rich people lose less during inflation. Similarly
lenders lose during inflation and borrowers gain during inflation. This is because, lenders now
get the less value of money after the price has increased. Thus, the effects are different on
different people(Gwartney, Stroup & Clark, 2014).
Answer (c)
The Australian measure of unemployment is not that accurate as it offers only a one-sided
survey of unemployment. Moreover, it offers only measure of employment and does not shows
anything about the number of jobs the country has. The method also fails to calculate the ill and
retired people under the measure of unemployment, making it an inaccurate measure for
unemployment rate (Hubbard, Garnett, & Lewis, 2012).
Answer 15
(a) Selling of government securities leads to a reduction in money supply because by selling
securities the government take away money from the bank as price of the security,
controlling the lending rate of the bank and low money supply.
(b) A fall in interest rate leads to an increase in money supply because at low interest rate
consumers will not invest or put their money in the savings.

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(c) Increase in government spending rate leads to an increase in money supply as
government buy more products from the market in exchange of price
(d) Purchasing of government security by central bank leads to increase in money supply as
central bank pays a price in exchange of the securities making it possible for the banks to
increase its lending power
(e) Reduction in target rate of inflation leads to decrease in money supply in the economy as
the government will carry out tight monetary policy in the economy to reduce inflation.
Answer 16
(a) It is an increase in injection to the country as the town council has invested on the
new library which will further add to the GDP
(b) Rise in the tax free threshold leads to an decrease in the injection in the country as
the tax is reducing in the country
(c) Reduction in injection as foreign income is reducing due to lack of tourism from
foreign country
(d) Reduction in leakages from the country as less number of foreign companies will
enter in the country and carry away the financial in way of earnings
(e) Reduction in leakages from the country as bank takes away money from the
people by selling bonds
(f) Increase in injection in the country as the new building of manufacturing will lead
to an increase in GDP of the economy
(g) Reduction in injection in the country as there will be reduction in foreign income
from foreign consumers
(h) Increase in leakage as consumers will spend more in foreign goods

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(i) Reduction in injection in the country as rate of investment reduces in the economy
(j) Increase in injection as trading partners will now start buying more imports from
out country.

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References
Acquah-Sam, E. (2017). Influencers of Inflation in Ghana. European Scientific Journal,
ESJ, 13(7).
Benhabib, J., Wang, P., & Wen, Y. (2015). Sentiments and aggregate demand
fluctuations. Econometrica, 83(2), 549-585.
Boyes, W., & Melvin, M. (2013). Fundamentals of economics. Cengage Learning.
Diamond, P. (2013). Cyclical unemployment, structural unemployment. IMF Economic
Review, 61(3), 410-455.
Gwartney, J. D., Stroup, R., & Clark, J. R. (2014). Essentials of economics. Academic Press.
Heijdra, B. J. (2017). Foundations of modern macroeconomics. Oxford university press.
Hubbard, G., Garnett, A., & Lewis, P. (2012). Essentials of economics. Pearson Higher
Education AU.
Jain, S. (2015). What Causes Inflation in India?.
Layton, A. P., Robinson, T. J., & Tucker, I. B. (2011). Economics for today. Cengage Learning.
Mankiw, N. G. (2014). Essentials of economics. Cengage learning.
Orlandi, F. (2014). New estimates of Phillips curves and structural unemployment in the euro
area. Quarterly Report on the Euro Area (QREA), 13(1), 21-26.

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Palley, T. I. (2014). Aggregate demand, endogenous money, and debt: a Keynesian critique of
Keen and an alternative theoretical framework. Review of Keynesian Economics, 2(3),
312-320.
Petroff, J. (2013). National Income Accounting. PEOI. org.
Quercia, R. G., Pennington-Cross, A., & Tian, C. Y. (2016). Differential impacts of structural
and cyclical unemployment on mortgage default and prepayment. The Journal of Real
Estate Finance and Economics, 53(3), 346-367.
Tucker, I. B. (2010). Economics for today. Cengage Learning.