Economics Assignment: Macroeconomic Concepts and Models

This economics assignment explores macroeconomic concepts and models such as the Consumer Price Index and Gross Domestic Product. It also covers topics like net migration, the AD-AS model, fiscal and monetary policy, and international trade.

Running Head: ECONOMICS
ECONOMICS ASSIGNMENT
Name:
Institution:
Date:

ECONOMICS.
Table of Contents
Part A: LO5 - Macroeconomic Concepts and Models.....................................................................1
Question 1: Consumer Price Index..............................................................................................1
Question 2: Gross Domestic Product...........................................................................................1
Part B: AD-AS Model and Economic Growth...............................................................................3
Question 1. Net Migration...........................................................................................................3
Question 2. Analyse Effect of GDP, Inflation and Unemployment.............................................4
Question 3. Recessionary and Inflationary Gap...........................................................................6
Part C: LO6 – Impact of Government on the Macroeconomic Objectives.....................................9
Question 1: Macroeconomic Objectives......................................................................................9
Question 2 Monetary Policy........................................................................................................9
Question 3. Fiscal Policy...........................................................................................................10
Part D: LO7 – International Trade and Global Economy..............................................................12
Question 1: International Trade.................................................................................................12
Question 2: Balance of Payment................................................................................................13
Question 3: Foreign Exchange...................................................................................................13
Question 4: Application Foreign Exchange...............................................................................14
References......................................................................................................................................16
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ECONOMICS.
Part A: LO5 - Macroeconomic Concepts and Models.
Question 1: Consumer Price Index.
It is a complete estimate used for measuring of cost variations in a basket of products and
services illustrative of consumption spending in an economy (Tang, et al., 2018).
The estimation of CPI comprises several classifications which have been made for
categorising consumption objects and on the source of consumer groups like urban and rural.
Established on these guides and sub-guides achieved, the ultimate general index of cost is
estimated frequently by national statistical organisations. It is one of the essential measurements
for an economy which is usually founded upon the weighted average of the cost of products. The
CPI provides a knowledge on the cost of living for individuals (Kim, Ha, & Kim, 2017).
Question 2: Gross Domestic Product.
It is one of the main pointers used to estimate the health of a nation's economy. It
signifies the whole money worth of all products and services manufactured over a particular time
period regularly referred to as the magnitude of the economy (Sayari, Sari, & Hammoudeh,
2018).
a. Calculate the value of Gross domestic product
Y =C + I +G+ ( X−M )
Y is the total output.
C is the individual expenditure
G is the Government expenditure
X are the Exports
M are the Imports
Y =23 , 100+6 , 200+ ( 13 , 300−15 , 100 )
=29 , 300+ ( −1800 )
=27 , 500
b. Why is the Gross Domestic Product understating the figure of economy.
 Lack of sufficient information to be included when estimating the GDP.
 A sizable underground economy. There is a great value of the economy that is not
accounted for in the calculation of economy.
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c. Gross domestic product is measured in both real and nominal terms so that we can have
some signal of progression if cost increase and also if cost falls. Nominal GDP is the
precise financial unit and a complete GDP in that specific year and Real GDP is a
technique of inflation variable GDP for comparison of years in terms of purchasing
power and not only entire money in an economy (Pan, Wang, Wang, & Yang, 2018).
d. It is an estimation of the complete economic productivity of a nation divided by the
number of individual and regulated for inflation. It is used to collate the standard of living
among nations and over time (Huq & Tribe, 2018).
e. Alternative measure for GDP.
Green GDP
The green gross domestic product is an index of economic progression with the
environmental concerns of that progression catered for. It expresses the GDP in monetary terms
and losses of biodiversity and accounts for prices as a result of climate variation. Most
environmental specialists prefer physical pointers like waste per capita and carbon dioxide
emissions per year, which may be gathered as Sustainable Development Index (Luukkanen, et
al., 2019).
Green GDP = GDP - Natural Resources depletion - Cost of Pollution
Index of Sustainable Economic Welfare.
This provides a complete illustration of economic welfare ever since this index adjust the
GDP figures to allow for activities ignored when estimating the Gross domestic product (Hussen,
2018).
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Part B: AD-AS Model and Economic Growth
Question 1. Net Migration.
Net Migration is increasing.
The net migration is the change among the figures of immigrants or individuals migrating
into an area and the figures of emigrants or individuals migrating out of an area during a specific
the year. When the figure of immigrants is greater than the figure of emigrants, a positive net
migration rate is achieved and a negative net migration is achieved when the immigrant is less
than the number of emigrants (Bertoli & Moraga, 2018).
AS-AD CURVE
Figure 1: AD-AS Curves.
When the net migration rise it indicates that the output level will be increasing and in turn a rise
in output level. A higher level of output moves the AS curve right ward direction with improved
output, businesses can yield a greater amount produced at every price level. The figure
above shows an outward move in productivity over two time periods. The AS curve moves out
from SRAS0 to SRAS1 to SRAS2, showing a rise in potential GDP in an economy and the
equilibrium moves from E0 to E1 to E2. The rise in output influences the SRAS curve to shift to
the right ward direction. The original equilibrium E0 passes across the AD and When SRAS shift
right direction then the new equilibrium E1 passes across AD and SRAS1 the final equilibrium,
E2, passes through AD and SRAS2. A move by SRAS to the right direction, shift towards to a
higher level of output and decrease on the cost level.
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ECONOMICS.
Question 2. Analyse Effect of GDP, Inflation and Unemployment.
Explain
i. A decrease in business confidence.
 Gross domestic product is decreases.
 Inflation rate is reducing.
 Unemployment level is increased.
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ECONOMICS.
ii. Increase in Individual savings for retirement.
 GDP is increases.
 Inflation rate is increases.
 Unemployment level is reducing.
iii. A rise in business confidence.
 GDP is increases.
 Inflation rate is increases.
 Unemployment level reduces.
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Question 3. Recessionary and Inflationary Gap.
i. Recessionary gap.
It is a term that implies to the change amongst real and possible GDP in an economy. A
country's gross domestic product is an estimate of how much an economy is creating and is used
to compare expansion amongst countries from year to year. It is also called contractionary gap
(Arranz, García-Serrano, & Hernanz, 2019).
Recessionary Gap model
When rate of employment is underneath the standard level, as indicated in Panel A above, at that
point of manufacture will require to be beneath the probable GDP. Panel B above shows the
contractionary gap YP-Y1, which comes about when AD curve and SRAS curve cut to the left
direction of LRAS curve.
Inflationary Gap.
It refers to the change amongst the current limit of real gross domestic product and the
anticipated gross domestic product which is looming when an economy is at full employment. It
is also referred to as the potential gross domestic product (Jarociński & Lenza, 2018).
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Inflationary Gap Model
Panel A above shows that labour resources are above standard level, then the output level needs
to be above potential GDP. The expansionary gap, shown in Panel B above is equals to Y1-YP.
The AD curve and the SRAS curve correspond to the right direction of the LRAS curve.
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ii. Effect of increase in transfer payment.
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Part C: LO6 – Impact of Government on the Macroeconomic Objectives.
Question 1: Macroeconomic Objectives.
Advantage.
Improved net migration rises the output level and progression in a nation. The immigrants
bring new skills to the country and they purchase properties such as houses and cars hence
injecting money into an economy.
Disadvantages.
The New Zealand country has never planned for housing for the past ten years therefore,
a rise in net migration has caused lack of housing units for the rising population. The increase in
number of cars purchased has caused to resident spending additional time on roads while going
to work and back home owing to traffic jams.
Question 2 Monetary Policy.
Monetary policy.
It is a regulation restricted by the central bank. It includes of regulating the money supply
and interest rates. It is an economic regulation used by the government of a country to achieve
broader economic purposes which includes inflation, consumption, expansion and liquidity
(Drechsler, Savov, & Schnabl, 2018).
Intention of monetary policy.
Monetary policy, adjust credit and check inflation prices and alleviate the exchange rate
so that it can achieve balance of payments equilibrium and encourage economic expansion.
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Official cash rate, is the interest rate set by the Reserve Bank of New Zealand. It influences the
other interest rates and allows the Reserve Bank of New Zealand to attain its goal of ensuring the
prices are constant and stable.
Type of monetary policy indicated above.
Its Expansionary monetary policy.
The concept of expansionary monetary policy is anticipated to result in high economic expansion
and reduced unemployment rate. It will also result in increased prices of goods and services.
Impact of the policy on the New Zealand Economy.
 Increases prices in New Zealand.
 Reduce unemployment level in New Zealand.
 There is increased rate of economic expansion.
Question 3. Fiscal Policy.
It is the procedure by which a government controls their spending culture and tax rates to
monitor and influence a nation's economy. Under the policy, the Reserve bank impacts a nation's
quantity of money in supply (Desai, 2019).
Intention of fiscal policy.
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ECONOMICS.
Fiscal policy is the technique in which a government controls its spending margin and tax
amounts to monitor and effect on nation’s budget.
Type of fiscal policy shown above.
Expansionary Fiscal Policy.
The initial equilibrium ( E0 ) represents a depression, occurring at the amount of output ( Y 0 )
beneath probable GDP . However, a shift in aggregate demand from AD0 to AD1 , endorse an
expansionary fiscal policy which moves the economy to a new equilibrium of output E1 at the
possible GDP which is shown by the LRAS curve above. In the meantime, the economy was
originally operating beneath the possible GDP level, any inflationary increase in the price limit
from P0 to P1 which is relatively small.
Possible influence of the policy on the New Zealand economy.
 Reduce unemployment rate and increase inflation rate.
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Part D: LO7 – International Trade and Global Economy.
Question 1: International Trade.
Table 1: Comparative Analysis.
OUTPUT 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 comparative advantage in wool production as they have a lower opportunity
cost of 0.7 in producing that wool as compared to Australian opportunity cost of 1.7 (Weber,
2016).
b. Australia.
Australia has a comparative advantage in Fish production as they have a lower opportunity cost
of 0.6 in fish producing as compared to opportunity cost of 1.5 for the New Zealand (Weber,
2016).
c. New Zealand to concentrate in production of wool and Australia to concentrate in
production of fish. This is because both nations are effective in making the particular
goods and they should trade their excess goods with goods that they cannot produce
effectively (Cummins, Dowling, & Kearney, 2016).
d. The Chinese enjoys a massive populace in the entire world. New Zealand has a lesser
population as compared to China and this implies that they have a lower productivity
therefore, they will export all the chilled meat to china remaining with less for
consumption which will a demand for chilled meat to the New. The China chilled meat
manufacturers on the other hand, will have to consent to the government new law on
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retail format which involves closing down free wet markets generally in open air and
street in large cities. The government want to promote a policy of a integrated animal
slaughter and animal disease prevention.
Question 2: Balance of Payment.
a. Importing more than exports, results to leakage in the circular flow of economy causing a
reduction in aggregate demand. Current account shortage leads to devaluation because
there is greater demand for imports and foreign currency. A current account shortage
shows inept economy. Buyers opt to go for low-priced imports than locally accessible
products (Stern, 2017).
b. The distance of New Zealand from other world market would make it impossible for
many countries to participate for the American Cup yachting projected to take place in
New Zealand in the year 2021, this shows that current account excesses will be
insignificant or they may even have a current account shortage which is uneconomical for
a country.
c. This is because the more the investors from overseas come to New Zealand the nation
will achieve more from their investments activities which is in terms of the money being
injected to the to the country’s economy than the country is investing in other countries.
This will contribute to current account surplus which is advantageous in an economy.
d. This will add completely 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.
Question 3: Foreign Exchange.
A drop in the exchange rate is called devaluation in the exchange rate which implies the
currency price is less as related to other currencies. The relative price of New Zealand goods and
services falls while the relative price of United States goods and services increases. A rise in
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exchange rate is called appreciation in the exchange rate which basically indicates that the
currency is worth less as compared to other currencies. The relative price of Australian goods
and services rises while the relative price of the New Zealand goods and services falls (Stern,
2017). The relative price of New Zealand education services rises while the relative price of the
other international countries education services falls.
Question 4: Application Foreign Exchange.
i. There is Appreciation of currency.
There is appreciation effect, the quantity of NZD increases on the other hand the price reduces.
ii. Appreciation of currency
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There is Appreciation effect as the quantity of New Zealand dollars increases while the Interest
rate also increases.
iii. Depreciation of currency
There is depreciation effect, the quantity New Zealand dollar dollars reduce from Q1 to Q2 and
also the price reduces from P1 to P2
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References
Arranz, J. M., García-Serrano, C., & Hernanz, V. (2019). The changing use of short-time work
schemes: Evidence from two recessions. European Journal of Industrial Relations, 25(1),
5-22.
Bertoli, S., & Moraga, J. F. (2018). The Effect of Visa Policies on International Migration Flows.
ifo DICE Report, 16(1), 38-41.
Cummins, M., Dowling, M., & Kearney, F. (2016). Oil market modelling: A comparative
analysis of fundamental and latent factor approaches. International Review of Financial
Analysis, 46, 211-218.
Desai, C. (2019). Economics, Monetary Theory and Fiscal Policy. In Management for Scientists.
Emerald Publishing Limited.
Drechsler, I., Savov, A., & Schnabl, P. (2018). A model of monetary policy and risk premia. The
Journal of Finance, 73(1), 317-373.
Huq, M., & Tribe, M. (2018). Growth and Structure of the Economy. In The Economy of Ghana.
Palgrave Macmillan, London.
Hussen, A. (2018). Principles of environmental economics and sustainability: an integrated
economic and ecological approach. Routledge.
Jarociński, M., & Lenza, M. (2018). An inflation‐predicting measure of the output gap in the
euro area. Journal of Money, Credit and Banking, 50(6), 1189-1224.
Kim, E., Ha, Y., & Kim, S. (2017). Public debt, corruption and sustainable economic growth.
Sustainability, 9(3), 433-456.
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