Economics Assignment

This document is an Economics Assignment that covers topics such as nominal GDP, percentage growth, CPI, inflation rate, risk management methods, efficient market hypothesis, and macroeconomics vs microeconomics. It also includes a comparison of economic growth and employment rate in the United Kingdom and Japan.

Running head: Economics Assignment
Economics Assignment
Name of the Student
Name of the University
Student ID

1Economics Assignment
Table of Contents
Answer 1..........................................................................................................................................2
Answer 2..........................................................................................................................................3
Answer 3..........................................................................................................................................5
Answer 4..........................................................................................................................................6
Answer 5..........................................................................................................................................6

2Economics Assignment
Answer 1
(a) Nominal GDP for Year 1 is given by summation of total value of X, Y and Z of year 1.
Nominal GDP for year1= ( 150× 20 ) + ( 10 ×1 ) +(12× 4)
¿ , Nominal GDP for year 1=3000+10+48
¿ , Nominal GDP for year 1=$ 3 0 58
Nominal GDP for Year 2 is given by summation of total value of X, Y and Z of year 2
Nominal GDP for year 2= ( 200 ×20 ) + ( 12 ×3 ) +(9 ×5)
¿ , Nominal GDP for year 2=4 0 00+ 36+45
¿ , Nominal GDP for year 2=$ 4 0 91
(b) Percentage of growth in nominal GDP from Year 1 to Year 2
Percentage growth∈GDP ¿ year 1¿ year 2=(4 0 91−3 0 58)
3 0 58 ×100
¿ , Percentage growth∈GDP ¿ year 1¿ year 2= 1 0 33
3 0 58 × 100
¿ , Percentage growth∈GDP ¿ year 1¿ year 2=33 . 78 %
(c) CPI of Year 2 is given by
CPI Year 2= 221
172 ×100
¿ , CPI Year 2=128.49
Therefore, inflation rate is 28.49%

3Economics Assignment
Therefore,
Real GDP∈Year 2= 4 0 91
28.49
Real GDP∈Year 2=$ 143.59(¿)
(d) GDP deflator of Year 2 is given by
GDP deflator of Year 2= Nominal GDP of Year 2
Real GDPof Year 2 × 100
GDP deflator of Year 2= 4 0 91
143.59 × 100
GDP deflator of Year 2=2849.08
(e) The inflation rate between Year 1 and Year 2 was 28.49%.
Answer 2
(A)
The two major problems in the insurance market are (i) Moral hazard and (ii) Adverse
selection. Moral hazard is the phenomena that occurs when an individual makes oneself more
exposed to risks because some other individual or group takes the burden of the cost of risk.
Thus, when a person opts for an insurance he/ she takes more risk and the chance of insuring
company’s loss increases. However, it is difficult for the insurance companies to predict the post
insurance action of the individuals and that increases the risk for the insurance companies and
thereby creates problem. On the other hand, adverse selection is the situation where difference in
information creates inefficient allocation of insurance. For example, price of premiums for life
insurance for alcoholic and non-alcoholic. Alcoholics should be charged more than non-

4Economics Assignment
alcoholics, but if price is increased then non-alcoholics will not purchase the insurance and the
insurance company will have to serve the alcoholics only and thus the company will face the
problem of adverse selection.
(B) The main risk management methods are:
 Avoidance
 Retention
 Transferring
 Reduction
 Sharing
(C) The Rule of 70 can be used to calculate the number of years required to double the amount of
economic growth. Economic growth is measured by real GDP growth. Suppose, country has a
real GDP growth of 7%. Then the economy become twice of its current size can be calculated by
Rule of 70 and is given by
Time required by the country ¿ beome double its current economic ¿70
7
Time required by the country ¿ beome double its current economic ¿ 10 years
Similarly, if a sum of money is invested at a rate of return of 5%, then the number of years
required for the invested some of money to become double is given by
Time required for the∑ of money invested ¿ become double= 70
5
Time required for the∑ of money invested ¿ become double=14 years

5Economics Assignment
(D) Efficient market hypothesis is common in financial economics. The hypothesis states that all
information regarding any asset that is traded is reflected in the price of the asset and thus trading
of assets and stocks are done without any unfair means of trading. Efficient market hypothesis is
categorized into weak, semi-strong and strong form. Under weak form trading information is
reflected in the price, under semi-strong only public information are reflected in to case of price.
On the other hand, under strong form the information regarding all public and non-public is
viable and the thus expectation of return is high in this category and weak from provides lowest
return.
(E) Macroeconomics studies an economy as a whole, whereas microeconomics studies structure
of markets. Macroeconomics also deals on understanding he aggregate behavior of an economy,
on the other hand microeconomics provides understanding of individual or firm behavior.
Macroeconomic measures the economic variables like GDO, economic growth and may more.
Alternatively, microeconomics deals on the individual firm level variables such as price,
quantity, cost.
Answer 3
CPI of country X in 2017 is 250 and CPI of the country in 2018 is 275.
Therefore, inflation rate can be calculated as
Rate of inflation=275−250
275 × 100
Rate of inflation=275−250
275 × 100
Rate of inflation= 1
11 × 100

6Economics Assignment
Rate of inflation=9.8 %
Answer 4
Price of XYZ stock today is to be find by calculation of using formula. Future stock price is
given as $5000 and the dividend is $100 at end of year each year for the three years.
Presnt value of stock price= D+ E
(1+r )Y
¿ , Present value of stock price= 300+5000
( 1+ 0.10 ) 3
¿ , Present value of stock price=$ 3981.97
Answer 5
From the diagram it is evident that the economic growth curve along with percentage
change in employment rate of United Kingdom and Japan are similar only during the initial stage
the percentage employment rate in Japan was high in comparison to the United Kingdom.
However, the rest of the graph shows that economic growth and employment rate is similar.
Therefore, it can be said that both the country faces similar problems and have same business
cycle.