Economics Course

Running head: ECONOMICS COURSE
Economics Course
Name of the student
Name of the university
Author Note

1ECONOMICS COURSE
Table of Contents
Section A:...................................................................................................................................3
Answer 1:...............................................................................................................................3
Answer 2:...............................................................................................................................3
a).............................................................................................................................................3
b)............................................................................................................................................5
c).............................................................................................................................................5
d)............................................................................................................................................6
e).............................................................................................................................................6
f).............................................................................................................................................6
Section B:...................................................................................................................................8
1)............................................................................................................................................8
2)............................................................................................................................................8
3)............................................................................................................................................9
4)............................................................................................................................................9
5)..........................................................................................................................................11
i)...........................................................................................................................................11
ii)..........................................................................................................................................12
Section C:.................................................................................................................................13
Q 1).......................................................................................................................................13
Q2)........................................................................................................................................14

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Q3)........................................................................................................................................15
Section D:.................................................................................................................................16
Q 1).......................................................................................................................................16
a)...........................................................................................................................................16
b)..........................................................................................................................................16
c)...........................................................................................................................................17
d)..........................................................................................................................................17
Q.2)...........................................................................................................................................17
b)..........................................................................................................................................18
c)...........................................................................................................................................18
d)..........................................................................................................................................19
e)...........................................................................................................................................19
f)...........................................................................................................................................19
Q. 3)......................................................................................................................................20
b)..........................................................................................................................................21
c)...........................................................................................................................................22
References:...............................................................................................................................23

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Section A:
Answer 1:
Consumer price index (CPI) measures the weighted mean of prices of a bundle of
consumer products like food and medical care. Through considering price changes for every
product and averaging them, this CPI is measured (Powell et al., 2018). In New Zealand, this
index measures the changing rate of price of products brought by households. Formula for
calculating this CPI in New Zealand is as follows:
Consumer Price Index (CPI) = (Cost of market basket at present year/ Cost of market at base
year) *100
The CPI index in year1 is 1080 and in year 2, this index is 1119. Hence, the rate of
inflation is as follows:
Inflation rate of year 2 = (CPI of year 2 – CPI of year 1)/ CPI of year 1 * 100
= (1119- 1080)/ 1080 * 100
= 39/ 1080 * 100
= 0.036 * 100
= 3.6
Answer 2:
a)
$m
Compensation of employees 18 900
Gross operating surplus 15 700
Final government consumption expenditure 6 200
Final household consumption expenditure 23 100
Changes in inventories 1 300
Gross fixed capital formation 9 500
Taxes on production and imports 4 500
Subsidies 600
Exports 13 300
Imports 15 100
Statistical discrepancy 200

4ECONOMICS COURSE
To determine gross domestic product (GDP), two methods can be used , viz.,
expenditure method and income method (Konchitchki & Patatoukas, 2014).
To calculate GDP ($m) by expenditure method, following components will be considered:
Final government consumption expenditure = 6200
Final household consumption expenditure = 23100
Changes in inventories = 1300
Gross fixed capital formation = 9500
(Exports – Imports) = (13300 – 15100) = -1800
GDP (expenditure method) = 6200 + 23100 + 1300 + 9500 – 1800
GDP (expenditure method) = 38300
To calculate this GDP ($m) by income method, following components will be considered:
Compensation of employees = 18900
Gross operating surplus = 15700
Taxes on production and imports = 4500
Subsidies = 600
GDP (income method) = 18900 + 15700 + 4500 – 600
GDP (income method) = 38500
Difference between GDP (income method) and GDP (expenditure method) calls statistical discrepancy,
which is given as 200 and is proved from the difference between two values of GDP.
38500 – 38300 = 200
b)
Situation Included or Excluded
(in the calculation of GDP)
(i) The voluntary work of a group in cleaning up a local
reserve. Excluded

5ECONOMICS COURSE
(ii) Activities of the underground economy. Excluded
(iii) The purchase of alcohol for a party. Included
(iv) The money spent on cleaning up the mess resulting
from a road accident and hospital care for injured
passengers.
Including
(v) The proceeds from illegal activities that do not go
through a market. Excluded
(vi) Spending by the government on new motorways out
of all the main centers. Including
(vii) A student renting a video for the weekend. Including
(viii) Non-market activity such as growing your own
vegetables or paving your own driveway. Excluding
(ix) A business upgrading its computer network. Excluding
(x) An electrician does the wiring for his neighbor (a
plumber) in exchange for unblocking his drain, i.e.
payments in kind.
Excluding
(xi) A builder build a block of flats. Including
(xii) Paying for electricity. Including
c)
Two reasons, where GDP understates the true level of economic activity can be
described as follows:
i) This indicator represents standard of living of a society however, this rough measurement
does not consider the direct account of environmental quality and leisure, standard of
education and health and changing inequality of income and so on (Feldstein, 2017).
ii) The GDP of any country does not consider non-market products as the economy produces
those goods but these are not exchanged in market.
d)
The chief difference between real GDP and nominal GDP is that the first type of GDP
indicator is inflation adjusted while the second one does not consider the value of inflation.