Economics Study Material

This study material provides comprehensive information on various topics in Economics including consumer price index, gross domestic product, migration impact on the economy, fiscal and monetary policies, comparative advantage, and balance of payments. It also discusses the impact of foreign investment, exchange rates, and the sharing economy on the New Zealand economy.

Running head: ECONOMICS
Economics
Name of the student
Name of the university
Author note

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Section A
Answer 1
The consumer price Index of the New Zealand is known to examine the price changes of the
given basket of services as well as goods of the economy.
The consumer price Index is known to be calculated as
CPI= Price of desired basket ∈current year
Price of desired basket ∈base year × 100
Answer 2
Answer a
From the table given the gross domestic product is calcutaed by the expenditure method which
is the summation of consumption, investment, net exports and the government expenditure.
Therefore, the result will be
23100+9500+ 6200+(13300−15100) = 3700
Therefore, the gross domestic product is 3700.
Answer b
The national income figures of the gross domestic product does not capture the true economic
activity of the country since it does not comprise of the transactions taking place in the informal
market. The national income figures also do not capture the level of existing income inequality
of the country.

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Answer c
The nominal gross domestic product is known to evaluate the values of goods as well as services
of the present year price which is known to represent the monetary values of the output of the
present year. On the other hand the real gross domestic product is known to estimate the values
of output at the fixed prices of the base year. this is known to provide a measure which is
inflation adjusted to the national estimates. In order to find the gross domestic product in the
present year prices in terms both real as well as nominal gross domestic product.
Answer d
The real gross domestic product per capita is the inflation adjusted total economic output in the
country that has been produced by an individual. It also shows the welfare of the individual of
the country or it shows the standard of living in the country.
Answer e
The two measures of the gross domestic product are the Human Development Index and the
Genuine Progress Index. The human development Index (HDI) is a statistic composite index of
the life expectancy, per capita income and education indicators which is used for ranking
countries in to the tiers of the human development.
A genuine progress indicator is a kind of metric which is used for measuring the economic
growth of the country which is used as the measurement for gross domestic product.
Section B

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Answer 1
When the migration have increased in New Zealand there will be a rise in the labour supply in
the country. When the migration will increase, the aggregate demand curve will be shifting to
right and will therefore move from AD1 to AD2. The increased labour force in the economy due
to immigration will be increasing the labour force employed over time which will also add
productivity of the country. This will then increase the supply of output. For this reason, the
aggregate supply curve will be shifting to the right. The aggregate supply curve will therefore
AS2
AS1
Q2
Price Level
Output
AD1
AD22
P
Q1

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move from AS1 to AS2. It can be said that the aggregate output in the economy increases as a
result of immigration in the economy. Therefore, the increase in net migration in New Zealand
will be increasing both the aggregate supply as well as the aggregate demand of the output in the
economy.
Answer 2
Answer a
A fall in the business confidence
when there is decline in the business confidence, it usually decreases the aggregate demand
curve which in terms reduces the output in the economy. As a result of declining business
confidence in the economy, the price level in the economy falls which devcreases inflation that
can also increase unemployment. As inflation and unemployment has inverse relationship,

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therefore it can be said that decline in the business confidence will reduce the output in the
economy and will increase unemployment.
b)
increase in the household savings
A rise in the household savings will be decreasing the aggregate demand since if people will be
saving more, they will have less money to spend and therefore the demand will automatically
decline. For this a reason, the aggregate demand will decrease and will therefore move from
AD1 to AD2. The contraction in the economic activity will be rising the rate of unemployment
level. The price level also decreases from P1 to P2 where the quantity demanded also goes down
from Q1 to Q2.
c)
Increase in the business confidence

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When the business investment will be rising, the investment will increase and for that the
employment level and the economic output which is the real gross domestic product will be
rising. At first the supply will be rising which will increase the level of output from Q1 to Q2
which will then decrease the level of price from P1 to P2. Then the level of consumption will be
increasing which will be resulting in the increase in demand. For this reason, it can be said that
the level of price as well as the level of output will be increasing from the point P2 to P1 and
then the level of output will increase from Q2 to Q3.
Answer 3
Answer i)

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The above diagram shows that Q* is marked as the potential national income and the Qe is
marked as the existing national income in the economy where Q* is much lesser than Qe.
Therefore, there is a presence of recessionary gap which is provided by the difference between
Q* and Qe. The gap present between Qe and Q* is termed as the recessionary gap.
Answer ii)

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The rise in the transfer payment will be increasing the aggregate demand in the economy which
will then shift the demand curve right. Increase in transfer payment will be increasing the
aggregate demand in the economy which will shift the AD curve from AD to AD1. As the
aggregate demand will shift to right, it will be increasing the output in the economy. The output
increase from Qe to Q2. As the output increases, it will be increasing the price level in the
economy from P to P2. For this reason, the price level will be increasing to P2 and the gross
domestic product will be moving towards potential GDP.
Section c
Answer 1
New Zealand is known to experience much faster growth in the market of property where the
foreign buyers are kknown to invest in their properties which leads to rise in the level of net

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migration in the economy. For this reason, there will be presence of inflation as a result of
increased inflow of capital in the country. The rise in the migration will be also creating the
problem of unemployment after a certain period of time when it will not be controlled. Also
when the net migration will be increasing in the economy, it will be creating the problem of
unemployment after a certain period of time when it is not controlled. Because of this, also the
individuals’s income will be increasing and the living standard of the people will be improving
in the economy.
Answer 2
The Reserve Bank of New Zealand is a very important financial regulatory body which is known
to control the financial sector as well as the economy of the country through its monetary policy.
The Reserve Bank of New Zealand is known have cut the official Cash Rate by 25 base points to
2.25. the monetary policy will be having an expansionary impact on the economy since the banks
can lend more. As a result of that people will be having more money in hand to spend. For this

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reason, both the consumption as well as spending will be increasing which will increase the
aggregate demand that will also lead to rightward shift of the aggregate demand curve. The AD
curve moves to the right from AD1 to AD2 and similarly the level of price also rises from P1 to
P2. Therefore, the new macroeconomic equilibrium will be at P2Q2 which will lead to an output
growth in the economy. Therefore, this particular policy is termed to be an expansionary
monetary policy.
Answer 3

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The New Zealand government is known to cut tax and then increase the disposable income of
any individual. This kind of particular policy of the government will be termed as the fiscal
policy. The fiscal policy is an instrument used by the government for controlling the economy.
The diagram states that it is an expansionary fiscal policy since it is known to increase the
disposable income which will be increasing the consumption as well as spending in the
economy. For this reason, the aggregate will be increasing with the price level in the economy.
This can be noticed in the above figure where both the output as well as the price level have
increased from Q1 to Q2 and the price level rises from P1 to P2 as a result of the right shift of the
aggregate demand curve from AD1 to AD2.
Section D
Answer 1
Opportunity cost
Wool Fish
NZ 1.5 0.67
Australia 0.6 1.67
Answer a
From producing only one unit of wool, New Zealand will have to sacrifice 1.5 units of fish while
on the other hand, Australia needs to sacrifice 0.6 units of fish. Therefore, it can be said that
Australia is known to have a comparative advantage of producing wool since it is having lower
opportunity cost of producing wool.
Answer b

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New Zealand should be sacrificing 0.67 units of wool for producing 1 unit of fish since Australia
will be sacrificing 1.67 units of wool. For this reason, it can be said that New Zealand is known
to have a comparative advantage of production of fish since it will be having a low opportunity
cost of fish production.
Answer c
New Zealand should be producing those goods in which it is known to have comparative
advantage. Under the situation of free trade Australia should be exporting wool and should be
importing fish. On the other hand, New Zealand should be exporting fish and importing wool.
When the country will be specializing in this way then the wool as well as the fish production
will take place in an efficient manner which will result in a higher production of both the goods.
Answer d
The openness of china to the chilled meat industry of New Zealand is known to adversely affect
the consumers of New Zealand along with the producers of China. Since the consumers of New
Zealand will be having less availability of chilled meat in order to consume as now the producer
will be more interested for exporting their products for china and will also get premium price.
On the other hand, the producers in New Zealnd will be suffering as a result of increased
competition with the prroduers of New Zealand.
Answer 2
Answer a
When new Zealand will be hosting america’s cup there will be huge amount of foreign inflow of
capital which will create surplus

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Answer b
As NZ is far from nay countries, most of them will not trade due to the long distance and other
risks which will adversely affect current account.
Answer c
New Zealand property firms are known to take investmemts from foreign investor in order to
improve BOP.
Answer d
When the foreign investment will be increasing it will negatively affect the financial account.
Answer 3
Answer a
The dollar of NZ fell down and for this the US importers are benficial. Although it is different
for Australia, as NZ dollar appreciates agagisnt AUD the NZ exporters will be suffering .
Answer b
In case of stronger NZ dollar, education in case of foreign countries will be much cheaper .
Answer 4
Answer a

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The economic recession will be shifting the demand curve for NZ dollar which will reduce the
equilibrium quantity of NZ dollar
Answer b
With the rise in the rate of interest, the demand for NZ dollar will also rise.
Answer c

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Successful exports and imports in New Zealand will be increasing the NZ dollar which will shift
the demand curve of NZ dollar to right that will also increase the price.

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Reference list
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Cleaner Production, 112, 4296-4303.
Allen, D. (2015). The sharing economy. Institute of Public Affairs Review: A Quarterly Review
of Politics and Public Affairs, The, 67(3), 24.
Ally, M., Gardiner, M., & Lane, M. (2016). The potential impact of digital currencies on the
Australian economy. arXiv preprint arXiv:1606.02462.
Manalo, J., Perera, D., & Rees, D. M. (2015). Exchange rate movements and the Australian
economy. Economic Modelling, 47, 53-62.
Rees, D. M., Smith, P., & Hall, J. (2016). A Multi‐sector Model of the Australian
Economy. Economic Record, 92(298), 374-408.
stats.govt.nz. (2019). Consumers price index. Retrieved from
https://www.stats.govt.nz/topics/consumers-price-indexhttps://www.stats.govt.nz/topics/
consumers-price-index