Economics Study Material with Solved Assignments and Essays - Desklib

This study material covers various topics in Economics including CPI, GDP, AD/AS model, monetary and fiscal policy, international trade, and balance of payment. It includes solved assignments, essays, and dissertations for various courses and universities. The content also discusses the advantages and disadvantages of economic growth, comparative advantage, and the impact of hosting the 2021 America's cup on New Zealand's current account.

Running head: ECONOMICS PAGE \* MERGEFORMAT 1
ECONOMICS
Name:
Institution:
Date:

ECONOMICS PAGE \* MERGEFORMAT 19
Economics
SECTION A.
Q1. CPI
Explain what CPI measures.
A government will use Consumer Price Index to measure inflation. Inflation is the overall
rise in price or cost of goods and services in a given economy. It is also the average variation of
prices over time rewarded to a persistent market basket of consumer goods and services. The
change out of hundred in CPI is used to measure the Inflation CITATION Ber18 \l 1033
(Bernanke, Laubach, Mishkin, & Posen, 2018).
How CPI is calculated CITATION Ros18 \l 1033 (Rossanty, Hasibuan, Napitupulu, Nasution, &
Rahim, 2018).
CPI =
P2
P 1׿ ¿ 100 Where P2 is the price of goods and services in a given year
P1 is the price of goods and services in the base year.
Q2. GDP
a. Use the data to
calculate the value of
Gross Domestic
Product (GDP). Show
your workings.
$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

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GDP = Total National Income + Sales Taxes + Depreciation + Net Foreign Income
GDP = 18,900+15,700+9,500+13,300-15,100-600
= 41,700
a. Complete the table indicate whether or not the situations are included or excluded during
calculation of GDP.
Situation Included or Excluded
(in the calculation of GDP)
(i) The voluntary work of a group in cleaning up a local
reserve. Excluded
(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.
Included

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(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. Included
(vii) A student renting a video for the weekend. Included
(viii) Non-market activity such as growing your own
vegetables or paving your own driveway. Excluded
(ix) A business upgrading its computer network. Included
(x) An electrician does the wiring for his neighbor (a
plumber) in exchange for unblocking his drain, i.e.
payments in kind.
Excluded
(xi) A builder build a block of flats. Included
(xii) Paying for electricity. Included
b. Give two reasons why the official figures for National Income (GDP) may understate
the true level of economic activity. (2 marks)
1. It does not include non-market activities
2. It does not include illegal activities for instance smuggling.
c. Why is GDP calculated in both real and nominal terms? (1 mark)
In order to cater for inflations in an economy or differences in price level
d. What does Real GDP per capita show? (1 mark)
It’s the overall monetary production of a country over the total population after the
inflation has been taken care off.

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e. Explain two limitations of Real GDP per capita as a measure of a country’s economic
well-being CITATION Cha18 \l 1033 (Chang, Gupta, & Miller, 2018). (2 marks)
1. It only measures production of goods and services in a legal market.
2. It does not include benefits derived as a results of rise in leisure time.
SECTION B.
1. Use your knowledge of the AD determinants to indicate the direction the aggregate
demand curve will shift for the situations given in the table below. If the aggregate
demand curve does not shift place a cross (X) in the space provided
Situation
Direction that AD
shifts inward or
outward
AD curve does not
shift place a cross (X)
(i) Income tax rates decrease OUTWARDS
(ii) A rise in business confidence OUTWARDS
(iii) A larger than expected budget surplus INWARDS
(iv) Interest rates rise as the OCR is raised INWARDS
(v) The government announces that GST will
increase in six months time X
(vi) New technology OUTWARDS
(vii) Costs of production fall OUTWARDS
(viii) A fall in business confidence INWARDS
(ix) Transfer payments are increased OUTWARDS
(x) Next exports $1 912m surplus OUTWARDS
(xi) The Reserve Bank Governor lowers the
OCR and interest rates fall OUTWARDS
(xii) Contractionary fiscal policy INWARD
(xiii) A net migration loss X
(xiv) A budget surplus INWARDS
(xv) A large increase in households starting to
save for their retirement OUTWARDS

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(xvi) Consumers go on a spending spree fearing
price rises in the future INWARDS
2. Use your knowledge of the AD determinants to indicate which direction the aggregate
supply curve will shift for the situations given. If the aggregate supply curve does not
shift place a cross (X) in the space provided
Situation
Direction that AS
curve will shift inward
or outward
AD curve does not
shift place a cross (X)
(i) New technology is developed OUTWARDS
(ii) Workers’ productivity falls as machinery
wears out and depreciates INWARDS
(iii) Workers’ wages rise OUTWARDS
(iv) New Zealand dollar appreciates resulting in
a fall in the price of imported raw materials OUTWARDS
(v) The government runs a budget surplus INWARDS
(vi) Rising oil prices INWARDS
(vii) An increase in investment spending by
firms OUTWARDS
(viii) Household incomes fall INWARDS
(ix) An increase in GST INWARDS
3. 2017 and 2018 figures for NZ show that net migration is increasing. Keeping this fact in
mind. Show the impact of this on the economy. In your answer you should:
I. Draw and fully label an AD/AS model to show the effect of migration changes.
EFFECT OF MIGRATION CHANGES

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II. Explain the changes to the AD and AS curves (6 marks)
In the short run, the short run aggregate curve shifts outwards, the price level goes down.
When the wage rate remains constant the GDP rise CITATION Rom18 \l 1033
(Romanowska & Smith, 2018).
4. Assume that an economy is operating at a moderate level of capacity utilization, analyses
the effects on real GDP, inflation (CPI), and unemployment level of the following events.
Draw sketch graphs to support your findings
a. A fall in business confidence
AD-AS MODEL

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Effect on:
Real GDP- leads to decrease in GDP
Inflation (CPI). – No effect on inflation
Unemployment level – increases
b. A large increase in households starting to save for their retirement.

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Effect on:
Real GDP- leads to increase in GDP
Inflation (CPI). – No effect on inflation
Unemployment level – decreases
c. A rise in business confidence
Effect on:
Real GDP- leads to increase in GDP
Inflation (CPI). – No effect on inflation
Unemployment level – decreases

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5. i) Draw an AD/AS model to show the economy close to full employment, i.e., actual
national income falls short of the economy’s potential national income. Label the
recessionary or inflationary gap.
(ii) Show the effect of an increase in transfer payments. Label the new equilibrium price
level
Explain the effects of an increase in transfer payments on inflation and economic growth. Refer
to your graph (3 marks)
The increase in transfer payment has no effect on inflation but has an effect on the
economic growth the price of goods and services increases while the quantity demanded also
increases.
S
D1
D
P2
P1
Q1 Q2
Quantity
Price

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SECTION C.
Q1. Although economic growth is beneficial to a country, faster growth can be harmful. There is
call from the Labor party to restrict foreign buyers from buying NZ property. At the same time
the leader of NZ First party is calling on the government to reduce net migration to NZ. Discuss
one advantage and two disadvantages in New Zealand due to faster economic growth of the
property market and how does it affect to government’s macroeconomic objectives?
(6 marks)
Advantages
a. Importation can lead to product specialization, in that country will focus its energy in
goods and services that they are good at producing.
b. Importation means that it is cheaper to purchase from outside than produce locally.
c. Importation means that the resident of importing country will gain access to goods and
services that the country does not produce.
Disadvantage
a. There is price conflicts for similar products available locally.
b. There is a higher tendency of crippling the domestic industry.
c. Imports can lead to flooding of goods and services in a country.
Q2. Monetary Policy

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Q3. Fiscal policy.
What the intention of monetary policy is and what role does the OCR play in NZ?
-There is more money in circulation than the require hence banks lower the interest rate to attract
the borrowers, who will invest and inject more money in economic activities hence increasing
the output and hence the GDP will rise too CITATION Kap18 \l 1033 (Kaplan, Moll, &
Violante, 2018).
What type of monetary policy is being conducted above?
-Expansionary policy
What might the potential impact of this policy be in the NZ economy?
a. Its purpose is to increase aggregate demand and economic growth in the economy.
b. It includes cutting rates and increasing money supply to boost the economy.
c.
Q3. Fiscal Policy

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What is an intention of a fiscal policy?
-This aims at household getting more disposable income to use or spend.
What type of fiscal policy is mentioned above?
-Expansionary fiscal policy
Discuss the potential impact of this policy in the NZ economy.
-It involves the tax cuts and rise in government spending. These policies lead to rise in aggregate
demand while causing discrepancies in budget excesses CITATION Add18 \l 1033 (Addison,
Niño‐Zarazúa, & Pirttilä, 2018).
SECTION D.
Q1. International trade
a. Look at the table below which country has comparative advantage of production of
wools? Why? (2 marks)

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-Australia has a comparative advantage of producing wool than New Zealand because it
does not produce fish as compared to New Zealand hence it can specialize in wool than
New Zealand CITATION McG18 \l 1033 (McGovern, 2018).
b. Look at the table below which country has comparative advantage in the production of
fish why? (2 marks)
New Zealand has a comparative advantage of producing Fish than Australia because it
can specialize in Fish than Australia.
OUTPUT PER WORKER PER ANNUM
WOOL FISH
NZ 60 90
AUSTRALIA 50 30
c. Briefly explain if it is a good idea or not for NZ and Australia to trade fish and wool? (3
marks)
-New Zealand should specialize in Fish while Australia should only specialize in wool it will be
cheaper in Australia to import fish than to produce locally and it will be cheaper for the New
Zealand to import wool than to produce locally.
d. Read the case study below and also use your knowledge to discuss one possible
disadvantage of this trade to NZ consumers and to the Chinese producers (3 marks)
- China has a huge population as compared to New Zealand hence New Zealand
consumers will have a deficit of chilled meat.

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Q2. BALANCE OF PAYMENT.
a. Use the following terms to indicate under which category the transactions below would
be included in the Balance of Payments CITATION Sha18 \l 1033 (Sharma, Rai, Rathee,
& Mehendale, 2018).
Transactions Category
(i) Foreign tourist using domestic airline. Investment income
payment
(ii) Premium paid to an overseas insurance company. Balance of current
transfers
(iii) Interest paid by domestic companies for foreign bank
loans.
Import of service
(iv) Aluminum hub caps sold in Detroit by a New Zealand
firm.
Export of good
(v) Foreign aid to a tsunami ravaged Pacific neighbor.
(vi) Dividends received by domestic shareholders from
overseas.
Export of service
(vii) A New Zealand firm buys cars from Japan. Import of good
(viii) A New Zealand flies on a plane operated by Singapore
Airlines.
Import of service
(ix) An Australian firm uses a New Zealand firm to ship its
produce to an Asian destination.
Investment income receipt
b. Explain the likely effect of hosting the 2021 America’s cup (yachting) on New Zealand’s
current account. (3 marks)
-Increase the GDP.
c. Complete the table below for the New Zealand dollar in the situations indicated.

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Situation
Demand for $NZ
or supply of
$NZ?
Direction
of shift
Appreciation or
depreciation of
$NZ?
(i) New Zealand tourist traveling
overseas Demand for NZ$ LEFT Depreciation
(ii) New Zealand importers paying
for raw materials Supply of NZ$ RIGHT Appreciation
(iii) New Zealand firm setting up in
Fiji Supply of NZ$ RIGHT Appreciation
(iv) The Fijian government buying
New Zealand goods and services Supply of NZ$ RIGHT Appreciation
(v) Loss of overseas markets markets
for New Zealand Demand for NZ$ LEFT Depreciation
d. NZ dollar has been falling compared to the US in the last 1-2 years but increasing
compared to the AUD, explain the effect of a falling dollar on exporters and importers for
both countries.
The New Zealand has been importing more goods and services from US than what it has
been exporting to US. That’s the reason as to why the NZ$ has been falling as compared to
US$. On the other hand, the NZ has been exporting more goods and services to Australia as
compared to what the Australia has been importing to NZ
e. Explain the impact of a strong NZ dollar for our international education industry (3
marks)
International education offers New Zealand with a huge and talented, skilled and well-
informed group of individual. While doing their studies the students get the opportunity of
touring various places and hence contribute to GDP.

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f. Analyze how expansionary monetary policy and contractionary monetary policy will
affect the exchange rate of the New Zealand currency (6 marks)
The effects of expansionary monetary policy lower the exchange rate, decline the financial
account and make stronger the current account. The rise in imports cause the current account to
depreciate. Contractionary monetary policy slows down the extensive inflation that go along
with a prosperous economy. The government achieve this by slowing its own spending.
Q3) For each of the situations describe in (a) through (c), construct a demand and supply graph
representing the foreign exchange market for the New Zealand dollar (NZ$). Use the trade-weigh
index (TWI) to represent price. Analyze the situations by showing any changes in demand and
supply of NZ$ and the impact (appreciation or depreciation) on the overall value of the NZ$ (2
marks each)
a. An economic recession in the USA impacts adversely on both the price and volume of
New Zealand’s exports to the USA and other markets.

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The prices decreases due to economic recession and the volume of goods exported also
decrease as shown in the diagram below
b. New Zealand’s interest rate increases relative to its major trading partners.

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Interest rates increases and hence leads to demand for New Zealand dollar, this in turns lead to
rightward pressure on the exchange rate.
c. There is an expansion of industries in New Zealand which compete successfully against
imported substitutes and also succeed in export markets.
d.

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References
BIBLIOGRAPHY Addison, T., Niño‐Zarazúa, M., & Pirttilä, J. (2018). Fiscal policy, state
building and economic development. Journal of International Development, 161-172.
Bernanke, B. S., Laubach, T., Mishkin, F. S., & Posen, A. S. (2018). Inflation targeting: lessons
from the international experience. Princeton University Press.
Chang, S., Gupta, R., & Miller, S. M. (2018). Causality between per capita real gdp and income
inequality in the US: Evidence from a wavelet analysis. Social Indicators Research, 269-
289.
Kaplan, G., Moll, B., & Violante, G. L. (2018). Monetary policy according to HANK. American
Economic Review, 697-743.
McGovern, E. (2018). International trade regulation (Vol. 2). Globefield Press.
Romanowska, A. B., & Smith, J. D. (2018). Diagrammatic duality. In Don Pigozzi on Abstract
Algebraic Logic, Universal Algebra, and Computer Science. Springer, Cham.
Rossanty, Y., Hasibuan, D., Napitupulu, J., Nasution, M. D., & Rahim, R. (2018). Composite
performance index as decision support method for multi case problem. International
Journal of Engineering & Technology, 33-36.
Sharma, J., Rai, A., Rathee, N., & Mehendale, S. (2018). Study on Factors that affect the Indian
Balance of Payments-A Methodological Overview and Thematic Review. . Asian
Journal of Management, 847-852.