Economic Evaluation of a Country with and without Investment

This assignment compares the economic performance of a country with and without investment in infrastructure. It analyzes the GDP, GDP deflator, and real GDP. The proposal with higher GDP is recommended based on Keynesian or Neoclassical reasoning. The implicit value of Marginal Propensity to Save is calculated for proposal B. The recommendation may change due to high inflation or increased annual consumption. The investment value for becoming indifferent between recommending Proposal A or Proposal B is also calculated.

Name:
Student #:
49003 ECONOMIC EVALUATION
Assignment #1 (Spring 2018)
Submission date: 28 August 2018
ANSWER-TEMPLATE
1. Provide a summary of the economic performance of the country - in the Table below.
(7 Marks)
2008 2013 2018 2023
WITHOUT
INVESTMENT GDP Deflator 107 100 133 121
Nominal GDP 600 750 Insufficien
t data
950
Real GDP (2018 prices) 561 750 Insufficien
t data
785
WITH
INVESTMENT
A Real GDP (2018 prices)
B Real GDP (2018 prices)
Notes: 1) Base year for GDP Deflators is 2013.
2) All entries in this table must be rounded-off to the nearest zeros, i.e., no decimal points.
2. Which proposal will you recommend? (3 Marks)
A B Either Neither
Why? Because ________________The investment which will have higher GDP will be
chosen.____________________________________________
____________________________________________________ (no more than 10 words)
3. Is the proposal, in this assignment, to invest in infrastructure based on Keynesian or Neo-
classical reasoning? (3 Marks)
Keynesian Neo-classical Either Neither
Why? Because _______________________Keynesian economics relates to government
sending and aggregate demand.______________________________________
Assignment 1-S18 –Answer Template
A
A

____________________________________________________ (no more than 10 words)
4. What value of ‘Marginal Propensity to Save’ is implicit in your calculations for proposal B?
(3 Marks)
Please present your calculations here (just two steps of calculations)?
MPC= ( average consumtion∈ year5−average consumption ∈ year 1)
(average disposable income∈ year 5−average diposable income ∈ year1)
= 69000−60000
64000−60000
=2.25
1-MPC= MPS
-1.25
5. Will you recommendation change if, say, due to unforeseen Global Financial Crises, the
economy experiences very high inflation and - as a result – the GDP Deflator for 2023
becomes 300? (3 Marks)
Yes No
Why? Because ______Real GDP will be
less.______________________________________________________
____________________________________________________ (no more than 10 words)
6. Will your recommendation change if, for Proposal A, people increased their annual
consumption by exactly the same amount as increase in their annual incomes (as shown in
Table 1 of the assignment)? (3 Marks)
Yes No
Why? Because ____________There will be same amount as increase in their annual
income._________________________________________________
____________________________________________________ (no more than 10 words)
7. For what value of investment (currently investment is $40bn, expressed in 2013 prices) will
you become indifferent between recommending Proposal A or Proposal B?
(3 Marks)
Assignment 1-S18 –Answer Template
-1.25
A
A

$bn
Please present your calculations to support your answer.
Nominal GDP2013 ( 2013 prices )= GDP 2013 (2008 prices )∗Deflator 2013
Deflator2008
= 50∗107
100 =53.5
GDP=C+I +G+ ( X−M )
2023
GDP=Market values of final goods + Indirect tax−subsidies
= 1100+150-100 =1150
Annexure
=
Average
income Average Saving
Average
consumption
60,000 0 60,000
61,000 -500 61,500
62,000 -1500 63,500
63,000 -3000 66,000
64,000 -5000 69,000
MPC= ( average consumtion∈ year5−average consumption ∈ year 1)
(average disposable income∈ year 5−average diposable income ∈ year1)
= 69000−60000
64000−60000
=2.25
Assignment 1-S18 –Answer Template

Assignment 1-S18 –Answer Template

Assignment 1-S18 –Answer Template