Economics Assignment: LO5- Economic Concepts, LO6- Impact of Government on the Macroeconomic Objectives, LO7- International Trade and Global Economy

This economics assignment covers topics such as consumer price index, gross domestic product, AD-AS model, government's impact on macroeconomic objectives, international trade, and global economy. It includes calculations, explanations, and analysis. Suitable for economics students studying LO5, LO6, and LO7.

ECONOMICS ASSIGNMENT.
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Institution:
Date:

Table of Contents
Part A: LO5- Economic Concepts............................................................................................................1
Section 1: Consumer price index.............................................................................................................1
Section 2: Gross domestic product..........................................................................................................1
Part B: AD-AS Model and Economic Growth........................................................................................3
Section 1. Migration................................................................................................................................3
Section 2. Effect of GDP, Unemployment and Inflation..........................................................................4
Section 3. Recessionary and Inflationary Gap.........................................................................................6
Part C: LO6–Impact of Government on the Macroeconomic Objectives.............................................8
Section 1. Government’s Macroeconomic Objectives.............................................................................8
Section 2 Monetary Policy.......................................................................................................................8
Section 3. Fiscal Policy...........................................................................................................................9
Part D: LO7 – International Trade and Global Economy....................................................................11
Section 1: International Trade................................................................................................................11
Section 2: Balance of Payment..............................................................................................................11
Section 3: Foreign Exchange.................................................................................................................12
References.................................................................................................................................................15
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Economics Assignment.
Part A: LO5- Economic Concepts.
Section 1: Consumer price index.
It is the proportion that inspects the measured average cost of purchased products and services
which comprises prices of transport, sustenance and health care. It is determined by taking cost
variances for every component in the determined products and calculating their averages
(Faryna, Talavera, & Yukhymenko, 2018).
Consumer price index = (Cost of Basket in current period/Cost of Basket in base period) X 100
Section 2: Gross domestic product.
a. Below is a Calculation of Gross domestic product using the Expenditure method (Choi &
Yi, 2018).
Y = C + I + G + (X - M)
Y is the Total Output also referred to as Gross domestic product.
C is the household expenditure
G is the Government expenditure
X are the Exports
M are the Imports
(X-M) their difference gives a Net Export.
GDP = 23,100 + 6,200 + (13,300 – 15,100)
= 29,300 -1,800
=27,500
b. 2 reason why GDP may understate the figure of economy (Fullerton & Muehlegger,
2019).
 GDP is not a perfect measure of wellbeing, some influences that are necessary
to good life are not incorporated in GDP Estimation.
 GDP uses market prices to charge goods and services, it does not incorporate the
cost of almost all undertakings outside the markets place.
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c. GDP is estimated in order to cater for inflation purposes (Heo & Blengini, 2019).
Nominal Gross domestic product is the exact financial component of the GDP in that
particular year and include changes due to inflation and deflation of market price. Real
GDP it is an estimate of the worth of economic productivity regulated for the price
changes (Dumas, 2018).
d. Real Gross domestic product per Capita is the estimated entire output of nation over the
number of individuals in a country and is regulated for inflation.
e. Alternative measure for GDP (Center, 2018).
i. Green GDP
It is a measure of economic development with the environmental concerns of the
growth factored into the nation’s convectional Gross domestic product. It gives the
loss of biodiversity in monetary terms and provides explanations for cost instigated
by climate changes. National income figures give an insufficient estimate of welfare
and does not give importance to environmental issues which include exhaustion of
natural resources. World Bank and the United Nations came up with the notion of
Green GDP (GGDP) (Center, 2018).
Green GDP = GDP - Natural Resources depletion - Cost of Pollution
ii. Index of Sustainable Economic Welfare.
This provides a complete illustration of economic well-being because this measure
controls the GDP figures to allow for other factors ignored by GDP (Menegaki,
2018).
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Part B: AD-AS Curves.
Section 1. Migration.
a. A rise in Net Migration.
The net migration is the change in the number of immigrant and emigrants a positive show that
there are a big number of immigrants than the emigrants. On the other hand, when the net
migration is negative it shows that there are quit a lesser number of immigrants than the
emigrants in New Zealand country (Dao, Docquier, Parsons, & Peri, 2018).
AS-AD CURVE
Figure 1: AD-AS Curves.
When the net migration rises it suggests that the output level will be enhanced and in turn rise in
the output level. A high limit of output moves the AD arc right-wards this is for the reason that
with enhanced output, companies can manufacture a higher number of amount produced at each
cost limit. The number above indicates an external move in output over time periods. The AD
bend moves outwards from AD0 to AD1, indicating increase in Output in the economy. The
stability moves from E0 to E1.
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Section 2. Effect of GDP, Unemployment and Inflation.
Explain
a. Business confidence reduction.
 A decrease in Gross domestic product.
 Rate of Inflation reduces.
 Rate of Unemployment rises.
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b. A rise in household savings for retirement.
 GDP increases.
 Rate of Inflation increases.
 Rate of Unemployment reduces.
c. Business confidence increases.
 An increase in Gross domestic product.
 Inflation rate rises.
 Rate of employment increases.
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Section 3. Recessionary and Inflationary Gap.
a. Recessionary gap.
It is a term that means to the change among real and possible GDP in an economy. A country's
gross domestic product is a measure of how much an economy is creating and is used to compare
expansion among country’s from year to year. It is also referred to as contractionary gap
(Albanesi & Şahin, 2018).
Recessionary Gap Curves
When rate of occupation is under the normal limit, as represented in PanelA above, at that point
production need to be under the possible GDP . PanelB above demonstrates the contractionary
gap YP−Y 1 , which happens when AD curve and SRAS curve transect to the left ward of
LRAS curve.
Inflationary Gap.
It is a concept which mentions to the changes between the current level of Real GDP and the
expected GDP which is likely when labour resource are used efficiently in an economy.
(Kindleberger, Di Tella, & di Tella, 2016).
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Inflationary Gap Curves
PanelA above indicate that labour resources are beyond normal limit, then productivity need to
be beyond possible GDP. The expansionary gap, indicated in PanelB above is equivalents
to Y 1−YP . The AD curve and the SRAS curve overlap right ward of the LRAS curve.
b. Effect of increase in transfer payment.
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Part C: LO6–Impact of Government on the Macroeconomic Objectives.
Section 1. Government’s Macroeconomic Objectives.
Advantage.
Increased net migration raises output and growth in a country. New technological
advancement is brought to the New Zealand country and properties comprising houses and cars
are bought by immigrants in return more money is pumped into the economy.
Disadvantages.
The government of New Zealand has failed to plan for the ever increasing population of
New Zealand in terms of housing and infrastructure for the past decade therefore this rise in net
migration has gave rise to lack of housing entities for the increasing population. The
infrastructural development has also stuck for many years as compared to the increasing number
of cars being bought this has led to resident spending more time on roads due to traffic jam.
Section 2 Monetary Policy.
Monetary policy.
It is a regulation agreed by the Reserve bank. It includes of regulating of money supply and
interest rate and it is the economic regulation applied by the regime of a nation to attain broader
economic resolutions such as price rises, consumption, development and liquidity (Gertler &
Karadi, 2015).
EXPANSIONARY MONETARY POLICY
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i. Intention of monetary policy.
Monetary policy, control credit and observe price increases and equate the exchange rate
so that it can achieve balance of payments equilibrium and encourage economic growth. The
Official cash rate is the cost of lending charged by Banks. It impacts the other costs and
consequently, the cost of borrowing money. It allows the central Bank to accomplish its
objectives of making sure cost does not change.
ii. Type of monetary policy above.
Its Expansionary monetary policy.
The concept of expansionary monetary policy is expected to cause high economic growth and
low unemployment rate. It will also cause a high rate of inflation.
iii. Impact of the policy on the New Zealand Economy.
 Increasing inflation rate in New Zealand.
 Reduce unemployment level in New Zealand.
 Cause a high economic growth/ GDP.
Section 3. Fiscal Policy.
It is a procedure by which a country controls its spending and tax rates to observe and impact on
a country's budget. Under the regulation, Reserve bank impacts a nation's total amount of money
in circulation (O'connor, 2017).
EXPANSINARY FISCAL POLICY
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i. Intention of fiscal policy.
Under this regulation a country controls its expenditure level and tax amounts to observe and
influences on country’s budge
ii. Type of fiscal policy above.
Expansionary Fiscal Policy.
Under this regulation increases in the limit of total demand over either rises in country’s
expenditures or decreases in taxes. This law achieves this by improving on consumption and
non-refundable revenue over reduction in individual earnings taxes or payroll taxes raising
savings by increasing after-tax proceeds over reduction in company taxes and raising regime
buying over raised expenditure by the central government on final products and services.
iii. Possible influence of the regulation on the New Zealand budget.
Reduce unemployment rate and increase inflation rate.
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Part D: LO7 – International Trade and Global Economy.
Section 1: International Trade.
Table 1: Comparative Analysis (Wehkamp, Koch, Lübbers, & Fuss, 2018).
PRODUCTION OF WORKERS PER YEAR
WOOL FISH
New Zealand 60 90
Opportunity cost NZ 60/90 = 0.7 90/60 = 1.5
Australia 50 30
Opportunity Cost Australia 50/30 =1.7 30/50 = 0.6
a. New Zealand.
New Zealand have a relative gain in wool making due to the fact that it requires a low
opportunity cost of 0.7 in making wool in comparison to Australian opportunity price of 1.7.
b. Australia.
Australia has a relative gain in Fish production as they have a low opportunity price of 0.6 in
fish producing as compared to opportunity cost of 1.5 for the New Zealand.
c. New Zealand should concentrate in making of wool and Australia to major in in
production of fish. This is because both countries are competent in production the
separate goods and they should trade their excess goods with goods that they cannot
produce efficiently.
d. The Chinese country is densely populated in the entire world of approximately 2.3billion.
It requires large volume of chilled meat and New Zealand with a population of close to
5million it is expected that it has low productivity meaning they have to export all their
chilled meat which will leave little or less amount of chilled meat for the New Zealand
chilled meat consumers therefore, this will create a demand for the commodity in the
country. The China chilled meat producers will have to accept the government new retail
format which entails closing down free wet markets mostly in open air and street in large
cities. The government want to promote a policy of a unified animal slaughter and animal
disease prevention.
Section 2: Balance of Payment.
a. Effects of NZ hosting yachting tournaments in 2021.
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 Importing more than exports results to leakage in the circular flow of economy and less
aggregate demand.
 Current account deficit leads to depreciation because there is high demand for imports
and foreign currency.
 A current account deficit depicts inept economy. Consumers opt to buy cheap imports
than locally accessible products.
b. The distance of New Zealand from other world market would make it impossible for
many countries to confirm attendance for the American Cup yachting anticipated to be
held in New Zealand in the year 2021, this implies that current account excess will be
minimal or they may even experience a current account deficit which is not good for an
economy.
c. This is because the more the venture capitalist from foreign country come to New
Zealand the country will gain more of their investments in terms of the money will be
brought to the country more than the country is investing in other countries.
d. This will contribute positively to the economy by an additional of money to the financial
account this is because the money is flowing into the country to procure the New Zealand
company. Whenever a financial account is having an excess then the current account will
be expected to have a deficit.
Section 3: Foreign Exchange.
The relative price of New Zealand products and services decreases whereas the relative
price of United States products and services rises. An increase in exchange rate is called
appreciation which simply means that the currency is worth more in comparison to other
currencies. The relative price of Australian products and services rises while the relative cost of
their neighbour country New Zealand products and services decrease.
The relative cost of New Zealand education services rises while the relative cost of the other
international countries education services reduces (Walter, 2018).
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Section 4: Forex Exchange application.
a. Demand and Supply for currency
New Zealand currency depreciates when the US dollar appreciates.
b. Demand and Supply for Interest rates
There is an appreciation of New Zealand currency when the interest rate also appreciates.
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c. Demand and Supply for Imports
There is a depreciation in NZ currency and the price due to competition in import market.
References
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Albanesi, S., & Şahin, A. (2018). The gender unemployment gap. Review of Economic
Dynamics, 30, 47-67.
Center, C. A. (2018). Overview of Green Development. In China-ASEAN Environment Outlook 1
(CAEO-1. Springer, Singapore.
Choi, C., & Yi, M. H. (2018). The Internet, R&D expenditure and economic growth. Applied
Economics Letters, 25(4), 264-267.
Dao, T. H., Docquier, F., Parsons, C., & Peri, G. (2018). Migration and development: Dissecting
the anatomy of the mobility transition. Journal of Development Economics, 132, 88-101.
Dumas, C. (2018). Populism and Economics. Profile Books.
Faryna, O., Talavera, O., & Yukhymenko, T. (2018). What Drives the Difference between
Online and Official Price Indexes. Visnyk of the National Bank of Ukraine, 243, 21-32.
Fullerton, D., & Muehlegger, E. (2019). Who bears the Economic Burdens of environmental
regulations. Review of Environmental Economics and Policy, 13(1), 62-82.
Gertler, M., & Karadi, P. (2015). Monetary policy surprises, credit costs, and economic activity.
American Economic Journal: Macroeconomics, 7(1), 44-76.
Heo, C. Y., & Blengini, I. (2019). A macroeconomic perspective on Airbnb’s global presence.
International Journal of Hospitality Management, 78, 47-49.
Kindleberger, C. P., Di Tella, G., & di Tella, G. (2016). Economics in the Long View: essays in
honour of WW Rostow. Springer.
Menegaki. (2018). The Basic, the Solid, the Site-Specific and the Full or Total Index of
Sustainable Economic Welfare (ISEW) for Turkey. Economies, 6(2), 24.
O'connor, J. (2017). The fiscal crisis of the state. Routledge.
Walter, H. C. (2018). Foreign exchange and foreign debts. Routledge.
Wehkamp, J., Koch, N., Lübbers, S., & Fuss, S. (2018). Governance and deforestation—a meta-
analysis in economics. Ecological economics, 144, 214-227.
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