Colombia's Peso & Australian Economy

This assignment examines the economic effects of a hypothetical strengthening of the Colombian Peso on Australia. Students are tasked with analyzing the potential impacts on Australia's current account balance, exchange rate with the US dollar, and official reserves. The analysis involves understanding concepts such as import/export dynamics, demand and supply of currencies, and the relationship between the balance of payments and a country's reserves.

Introduction to
Macroeconomics

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
QUESTION 1...................................................................................................................................1
Measuring GDP and Economic growth:.....................................................................................1
QUESTION 2...................................................................................................................................4
Jobs and Inflation........................................................................................................................4
QUESTION 3...................................................................................................................................8
Global saving and US current account........................................................................................8
Exchange rate .............................................................................................................................8
Balance of payment.....................................................................................................................9
REFERENCES..............................................................................................................................10

INTRODUCTION
The branch of economics which would be identifying and dealing with behaviour and
decision making of the economy as whole which includes regional, national and international is
known to as macroeconomics. The present report will be covering various important features of
macroeconomics like that of GDP, economic growth of Australia and also thee factors that will
be consider to as challenges measuring economic welfare of the country. The report will be
further including jobs and inflation within Australia and calculating labour force and
employment. At the end it will include exchange rate and balance of payments of Colombia.
QUESTION 1
Measuring GDP and Economic growth:
(a) Calculating GDP using expenditure.
While calculating GDP using the expenditure approach there are 4 main aggregate which
are to be included which are household, investment by business, government expenditure and net
exports (Fuhrer, 2017). So with the help of given data of Parchment paradise GDP using
expenditure approach would be as follows:
C+I+G+X = GDP
Where,
C= total household or consumption expenditure.
I= total investment expenditure.
G= total government spending.
X= net exports i.e., total exports minus total imports
2000+800+400+(-200) = $3000
So the total GDP of Parchment paradise would be $3000 using the expenditure approach.
(b) Calculating sum of total income less wages and statistical discrepancy.
$2,900-$2,000
= $900
(c) Calculating Maritime Republic’s nominal GDP in 2015 and 2016.
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The GDP which is calculated at the market price is known as nominal GDP and this will
be including all the changes in market price that are occurring during the current year which is
due ot inflation or deflation. So for calculating the nominal GDP of Maritime Republic in 2015
and 2016 with the given data of quantity and price of fish and crabs for both the year.
Quantities 2015 2016
Fish 1,000 tonnes 1,100 tonnes
Crabs 500 tonnes 525 tonnes
Prices
Fish $20 a tonne $30 a tonne
Crabs $10 a tonne $8 a tonne
The nominal GDP for each year would be
Year 2015: (Quantity of fish* price of fish) + (Quantity of crab* price of crab)
Year 2016: (Quantity of fish* price of fish) + (Quantity of crab* price of crab)
Where,
Year 2015: (1000*20) + (500*10)
Year 2016: (1100*30) + (525*8)
So,
Year 2015: (20000) + (5000) = 25000
Year 2016: (33000) + (4200) = 37200
Nominal GDP for Maritime Republic which is producing only Fish and Crabs for the year 2015
would be $25000 and for the year 2016 it would be $37200.
(d) Calculating Maritime Republic’s chain volume measure of real GDP in 2016 expressed in
2015 dollar.
Chain volume measure of real GDP is the economic data like that of GDP or GNP from
successive years put in real and constant terms by calculating production volume for each year
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within price of each year. The total amount or quantities of goods and services produced within
the country during one single year is called as Gross Domestic Product or GDP of that economy.
(e) Explaining factors which are limiting the usefulness of GDP as measure of economic welfare.
According to the HDI of United Nations they are including both health and education of
any economy into account (Human Development Index, 2018). Human Development Index is
the measure of life expectancy, education and per capita income of the economy within one year
and this is used to rank countries. This is also measuring the economic welfare of that country
with including education and health of nation. But some said that this measure must also include
other measures like that of green net national product which will be taking into account depletion
of natural resources while some other said that this must include happiness in measure. Both
these benchmarks are having their own merit but at the same time they both could not be
measured in frequency, reliability and impartiality within GDP.
These are the alternative approaches which are suggested to UN for the measurements of
real GDP countries which are HDI, Gross National Happiness (GNH) and Social Progress Index
(SPI). They are also regarded ot as factors which is limiting the usefulness of GDP as the
measure of economic welfare as they can not be used to measure in frequency or reliability
terms. GNH is the measure which will be taking social welfare and was developed in Bhutan is
having 4 pillars (Human Development Index, 2018). HDI is the measure which will be including
people and their capabilities in assessing development and welfare of country. This is taking into
account education as the main factor of growth. While the SPI is measuring 3 basic dimension
like human need, foundation of well being and opportunity.
(f) What are the challenges involved in trying to incorporate measurements of these factors to
measure economic welfare?
Although, it is very much important to use the HDI and happiness as one of the factor to
determine economic welfare and development of that country. But there are also some challenges
or difficulties which are there in measurements of this index of any country like frequency,
reliability and impartiality.
 Data which is collected from the countries may not be very much reliable in all terms and
there are also difficulties in assessing these data or information from countries like that of
Afghanistan or Iraq.
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 The data which will be collected on the basis of happiness will be based on random and
personal choice rather than on some facts or reasons so measuring education and health
will be more considered.
 There will be no equal distribution of happiness within the whole nation like that of GDP
and this is also regarded to as one of the major challenges.
 In the education index of HDI there are no clear indication of access to education for all
groups in society.
(g) What does the ranking of Australia in Human Development Index (HDI) indicate about the
level of health and education relative to other nations?
Illustration 1: Australia’s HDI indicators for 2012 relative to selected countries and
groups
The HDI will be indicating basic human development achievements in that country. The data of
HDI in the year 2012 which ranks Australia on 2nd position tells that in Australia income is
equally distributed and there are also education level equal. The life expectancy at birth in
Australia is about 82 which is also a very good indicator. Australia is been put under the top
most developed countries of world and also tells that education level, per capita income level and
health level at country is very good.
QUESTION 2
Jobs and Inflation
(a) Calculating labour force.
as we have been given Labour force participation rate and working age population so we will be
considering labour force as 'x'
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69.6%= x/18,429,726
x= 69.6%*18,429,726
x= 12827089.296 will be labour force
(b) Calculating employment
Employment-to-population ratio: 65.2
Employment-to-population ratio: labour force employed/ total population
as we have been given Employment-to-population ratio and total population so we will be
considering labour force employed as 'x'
65.2= x/18,429,726
x= 65.2*18,429,726
x= 1201618135.2 will b labour force employed or employment
(c) Calculating unemployment rate
Unemployment rate = number of unemployed persons/labour force
unemployment rate=197600/3802900
5.19 will be unemployment rate.
(d) Calculating CPI in current year
CPI of juice in 2016 = 4/4*100
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= 100
CPI of cloth in 2016= 6/5*100
= 120
(e) Calculating inflation rate in current year
CPI in both juice and cloth for base year will be 100 and for 2016 it will be 100 and 120
respectively so inflation rate will be
juice in 2016 = 100-100/100*100
= 0
cloth in 2016 =120-100/100*100
= 20
this indicate that price of juice is remaining constant while the price of cloth is increasing by 20
from base year (2015) to current year (2016) (How Do I Calculate the Inflation Rate? 2018)
(f) What are the reasons behind unemployment even if the labour market is working properly?
Even if the labour market of Australia is working properly there are still job vacancy and
then unemployment the main reason behind this could be lack of skilled and qualified labour or
worker (Cavallo, Cruces and Perez-Truglia, 2017). If the country is having lots of job
opportunities but its unemployed labour are not that much capable or qualified then there will
remain the cause of unemployment within the country.
(g) Who are the part of structural or cyclical unemployment?
All the additional workers in the three months of August 2011 are the part of structural
unemployment as their skills are not able to match with the skills which are needed by the job
vacancy. All the available job vacancy will not be able to filled up by the unemployed workers as
they are not having the proper skills and knowledge about the work which job is offering them.
(h) How quantity expansion of euro currency likely ot affect money supply, interest rate,
investment, consumption and economic growth?
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If quantities of euro money is increased by ECB then money supply will also be
increasing as there will be money to spend with citizens.
If quantities of euro money is increased by ECB then interest rate will be decreased as no
one will be taking any loan while they are already having the money with them.
Illustration 3: Interest rate
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Illustration 2: Money supply
[Source: Russell, B., 2017]

[Source: Russell, B., 2017]
If quantities of euro money is increased by ECB then investment and consumption will
increased as they will be having more money to spend and invest.
If quantities of euro money is increased by ECB then because of increased investment
and consumption economic growth will be increased.
QUESTION 3
Global saving and US current account
(a) Why is US with world largest economy?
US is the largest economy in world as the output growth is returned to very healthy level,
labour market is good very good and inflation rate is also under the control of US government.
(b) What implications do US deficit current account have on economic performance of US
economy?
The current account of US balance of payment is at deficit position so this will be
indicating that US government is having imbalance to decline and credit of foreign investment.
US in the coming years will not be doing good in international market.
(c) What policies could be used?
The government of US must be constructing more and more industries within country so
that thy are not importing from outside and can also increase the rate of exports within country.
Exchange rate
(a) Demand of pesos
Demand of pesos in foreign market would be increased as this will b attracting more
foreign investment.
(b) Supply of pesos
Supply of pesos in foreign market will also be increased with the increase in demand of
peso.
(c) Quantities of pesos demanded
This will also be increased and causing the damned curve to shift rightwards.
(d) Quantities of pesos supplied
There will be indirect effect of increase in quantities supplied of pesos.
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(e) Exchange rate of pesos against Australian dollar.
Exchange rate of Colombia pesos against Australian dollar will be increased as the
investment of foreign countries are increasing with the increase in demand.
Balance of payment
(a) Calculating current account balance
CAB= X-M+NY+NCT
CAB= (1853-2561)+ (955-300) + (-123)
= (-176)
(b) Calculating capital and financial account
current account balance =(1853-2561) + (121)
= (-587)
Financial account would be +587 so that the balance of payment = 0
(c) Did official reserve of US increased or decreased?
The official reserve of US was decreased as the net export of the country is in deficit and
net exports are increasing so the reserve is decreasing.
(d) Was US borrower or lender in the year.
US was net borrower as they were importing more in the particulate so they are giving
more money outside the country.
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REFERENCES
Books and Journals
Cavallo, A., Cruces, G. and Perez-Truglia, R., 2017. Inflation expectations, learning, and
supermarket prices: Evidence from survey experiments. American Economic Journal:
Macroeconomics. 9(3). pp.1-35.
Fuhrer, J., 2017. Expectations as a source of macroeconomic persistence: Evidence from survey
expectations in a dynamic macro model. Journal of Monetary Economics. 86. pp.22-35.
Russell, B., 2017. ‘Modern’Phillips curves and the implications for the statistical process of
inflation. Applied Economics Letters. 24(1). pp.58-60.
Online
How Do I Calculate the Inflation Rate? 2018 [Online]. Accessed through:
<https://inflationdata.com/Inflation/Inflation_Articles/CalculateInflation.asp>
Human Development Index, 2018 [Online]. Accessed through:
<http://hdr.undp.org/sites/default/files/Country-Profiles/AUS.pdf>
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