Economics Study Material and Solved Assignments

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Economics
Name of the student
Name of the university
Author note

Section A
Answer 1
The consumer price index (CPI) in case of New Zealand will be measuring the change in price of a given
basket of services and goods which the individual of the country will be buying. The consumer price
Index for the present year is calculated by
CPI= Price of desired basket ∈current year
Price of desired basket ∈base year × 100
Answer 2
a)
The gross domestic product calculation by the expenditure approach
GDP=23100+9500+1300+6200+(13300−15100)
Gross domestic product -= 38300
b)
the National Income of the gross domestic product is known to fail to capture the true economic activity
of the country since it does not take into account the transactions which takes place in the informal
market. It will not be not capturing the level of existing income inequality in the country.
c)
the nominal gross domestic product is known to measure the values of services as well as goods in the
present year price. This is known to represent the monetary values of the current year price of the
market. The real gross domestic product on the other hand, is known to estimate the values of output at
the fixed base year prices. For assessing the gross domestic product of the current year prices and also
in inflation adjusted manner of gross domestic product it is required for computing real as well as
nominal terms.
d )
the real gross domestic product is known as the inflation adjusted total output of the economy of a
country which is produced per individual. It might show the welfare of an individual of the country .
e)

the two measures of the gross domestic product are the human development Index and the Fordham
Index of Social Health. The human development index is known to include to income , educational
factors and health factors.
Section B
1
As migration of New Zealand will be increasing, the labour supply in the country will also rise. This will
result to rise in the demand in the economy and for that reason the aggregate demand in the economy
will be moving to right from AD1 to AD2 which is shown in the above figure. The rise in the labour force
will also add to productivity in the country which will rise the supply of output in the economy. For this
reason, the aggregate supply will be shifting right from AS1 to AS2. For this reason, the output in the
economy will be increasing due to rise in migration.
Answer 2
a)
fall in business confidence

Decrease in the business confidence will be decreasing the real gross domestic product that will be
decreasing the rate of inflation and also will lead to rise in the rate of unemployment.
b)
rise in the household savings
Rise in the household savings will be decreasing the aggregate demand that will be creating deflationary
effect which will also lead to decline in the price level. The contraction in the economic activity will be
increasing the unemployment rate in the economy.

c)
rise in business confidence
When there is a rise in the business confidence, the level of investment will be increasing and for this,
the employment and the economic output will be rising. The supply at first rises which will result to
increase in output that will increase from Q1 to Q2. The level of price will also decline from P1 to P2.
Therefore, the level of consumption will also increase which will be increasing the demand in the
economy. Both the level of price as well as the level of output will be increasing from Q2 to Q3 and the
price level increases from P2 to P1.
Answer 3

The above figure of the recessionary gap states that Q* is termed as the potential national income on
the other hand, Qe will be the existing national income. In this case Q* will be less than Qe. This will be
forming a recessionary gap in the economy that is given by difference between Q* and Qe.
ii)
The rise in the transfer payment will be increasing the aggregate demand and will be shifting the
demand curve to right from AD1 to AD2. For this reason, the level of price will increasing from P1 to P2
and the gross domestic product.

Section C
Answer 1
NZ is known to experience the faster growth in the economy in the property market since the foreign
buyers are investing in the properties, the net migration will also increase. For this reason, it can lead to
inflation in the economy. The increase in migration will be creating a problem of unemployment in the
economy after sometime.
Answer 2
The reserve bank of New Zealand will be controlling the financial sector of the economy by its monetary
policies. The article states that the Reserve Bank of New Zealand will be cutting the official cash rate by
25 points. Therefore, the monetary policy is known to have a expansionary effect on the economy since
there will be more money in the people’s hands. The aggregate demand curve moves right from AD1 to
AD2. The price level also increases from P1 to P2 and the output level similarly increases from Q1 to Q2.
Therefore, the government is known to use expansionary monetary policy.
Answer 3

The government in this case is known to cut tax which will then increase the disposable income of the
consumers. This particular policy is termed as the fiscal policy. The fiscal policy is known as that
instrument of the government which controls the economy. The fiscal policy is termed as the
expansionary fiscal policy since it will increase the disposable income which will in term increase
consumption as well as spending in the economy. For this reason, the aggregate demand in the
economy will increase which will increase the AD curve from AD1 to AD2. As the demand will be
increasing, it will increase the price level and the level of price will rise from P1 to P2. The output will
also increase from Q1 to Q2 in the economy
Section D
Q1)
1)
a)
Australia have the comparative advantage in producing wool since it has low opportunity cost in wool
production.
b)
new Zealand have comparative advantage in producing fish since it has low opportunity cost.
c)
NZ should export fish and import wool and Australia should do the opposite

d) The openness of China to NZ’s chilled meat industry adversely affects consumers in NZ and producers
in China. The people of NZ will have less availability of chilled meat for consumption.
Q2)
a)
when NZ will be hosting america’s cup, there will be large amount of capital inflow in the country which
will be surplus in current account.
b)
The long distance will have adverse effect on the country and less trade will mean less inflow of
capital.
c)
the firms have welcomed investments from the foreign investors in order to improve the capital account
of the BOP
d)
when the foreign investment will be increasing at a huge rate there will be a cash flow in the economy
which will improve the current account. This will be negatively affecting the financial account.
Q3)
a)
As the problem states that NZ dollar have depreciated compared to US, therefore it would be quite
beneficial to import from New Zealand however the exports will lose in this case. When the NZ dollar
appreciated against AUD, the NZ exporters will be at loss and the importers will gain. On the other hand,
the situation will be exactly opposite for Australians.
b)

when the NZ dollar is strong, the education in the foreign countries will be quite cheaper for the
students of New Zealand on the other hand, the education for foreigners will be expensive in New
Zealand.
Q4)
a)
When there is an economic recession in the United States of America, the demand for the NZ dollar will
decrease as recession impacts adversely on both volume and price of the exports of New Zealand.
b)

When the interest rate of New Zealand increases relative to its major trading partners, foreigners will
tend to invest more in New Zealand. For this reason, the demand for NZ dollar for rise which will
increase the aggregate demand curve and will move to right. Therefore both output and price increases.
c)

When there is an expansion of industries in New Zealand which competes successfully against the
imported substitutes and then it succeeded in exports markets, the NZ dollar appreciates. As there is
expansion, the demand for NZ dollar will increase which will shift the demand curve to right leading
both price and output rise in the economy.

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