Economics for Decision Making

Economics for Decision
Making

Question 1
(a)
i)
The value of consumption in Classica in 2019:
The given consumption of new goods and services is worth around $1 million dollar. Out of this
20% consumption made by foreigners will be reduced on the principle of only considering the
consumption of Classica. Therefore 80% will be kept out from $1 billion to get Classica’s total
consumption worth.
Calculation:
80% of $1 billion = .80 * $1000, 000,000
= $800, 000,000 or $0.8 Billion
ii)
Value of investment in Classica in 2019:
Investment function indicates spending by manufacturers to acquire fixed assets or any other
property to raise money. The calculation has been done below:
Calculation:
Total investment = Housing stock (70%) + wages + bonds + expansion expenses
= $70, 000,000 + $120, 000,000 + $150, 000,000 + $25, 000,000
= $365, 000,000 or $365 Million
Note: While calculating housing stock; only 70% has been considered due to the fact that 30% is
already calculated in previous year so to avoid duplicity, 30% of existing housing stock has been
reduced.
iii)
Value of government expenditure in Classica in 2019:

Calculation:
Government expenditure = Procurement of protective equipment + Paid fees to agents +
Transferred to charities
= $150 M + $10 M + $20 M
= $180 M
All the expenditure by government has been considered; as all the spending has been done for
the growth of the economy.
iv)
Classica’s GDP in 2019:
GDP = C + G + I + (X-M)
C = Consumption
G = Government expenditure
I = Investment
X - M = Export – Import or Net export
GDP = $800 M + $180 M + $365 M
= $1, 345 Million or $1.354 Billion
(b)
The standard of living is a measure of the material aspects of a national or regional economy. It
counts the amount of goods and services produced and available for purchase by a person,
family, group, or nation.
In this case; both Nigeria and New Zealand has same currency but different Purchasing power
parity; so comparison based on current prices for all goods and services in the form of Nominal
GDP will not accurate result for measuring standard of living in New Zealand as well as in
Nigeria. So, I totally disagree with this statement.
For instance; the price of product X in New Zealand is $2 while in Nigeria it is $4 dollar; and
both countries consumes 100 units of same product. Thus the nominal GDP of New Zealand will
be $200 and Nigeria’s $400 but their consumption of units are same; therefore nominal GDP is
not feasible method to measure standard of living.