Business Economics BUECO5903 Assignment B: Macroeconomic Analysis

This economics assignment provides detailed solutions to macroeconomic problems. The assignment covers various topics, including GDP calculation using income and expenditure methods, and the difference between GDP and NDP. It includes analysis of the consumption function, and the impact of changes in aggregate supply and demand. The assignment also explores the advantages and disadvantages of the Consumer Price Index (CPI), the winners and losers of inflation, and the components of the balance of payments. The document addresses questions on intermediate vs. final goods and services, and the effects of changes in government spending, taxation, and exports. The assignment is a comprehensive review of macroeconomic principles, designed to help students understand key concepts and apply them to real-world scenarios. The assignment also covers the advantages and disadvantages of CPI, and the winners and losers of inflation, and the components of the balance of payments.

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

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Table of Contents
Answer 1....................................................................................................................................3
Answer 2....................................................................................................................................6
Answer 5....................................................................................................................................7
Answer 6..................................................................................................................................10
Answer 8..................................................................................................................................12

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Answer 1
(a)
GDP income method
Return to labour + profit of firms + other factors rental
=2651+ 1687+482 = $4820 billion
(b)
GDP expenditure method
Consumption+ investment+ (export –import) + government
= 3115+ 785+ 210+585+(690-565) = $4820 billion
(c)
Gross national expenditure = C+I+G
= 3115+ 785+ 210+585 = $4695 billion
( d)
Net domestic product = GDP – Consumption of fixed capital
= 4820 -320 = $4500 Billion
( e)
NDP is a better measure of economic performance since it is known to include depreciation
unlike that of GDP.
(f)
Gross national product = GDP-Net factor income paid abroad

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=4820 -34
=$4786 billion
(g)
Net national product
Gross national product - consumption of fixed capital
= 4786-320
=4466 billion
(h)
Current account balance
=export- import – factor payment abroad
690-585-34 =$91 billion
( i)
Gross national saving
Gross national income – consumption- government spending
=4786-3115-$(585+210)
876 billion
(j )
National saving = private saving +public saving
(Y-T-C) + (T-G)
= Y-C-G

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= 4820 – 3115 -795 = 890 BILLION
( K)
Consumption function is
C = a+by
3115 = a +0.63 * 4820
a = 3115-3036.6
a= 78.4
when the GDP is $4873, consumption will be
C = 78.5 + (0.63*4873)
=78.5+3069.99 = 3148.39 BILLION
(i)
Export = 694
Private investment =782 billion
Government consumption = 582 billion
Government investment = 214 billion
GDP = C+I+G+X-M
= 3115 + 785 +694 – 565+214+582 = 4822 Billion

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Answer 2
(i)
When a windscreen is purchased by a motor vehicle spare parts supplier, it is included in the
intermediate goods and services. The intermediate goods are the semi finished goods since it
is not yet he finished part of the goods.
(ii)
The new bulldozer used by the construction company will be included in the final goods and
services.
(iii)
The household cleaning service purchased by the family is termed as the final goods and
service.
(iv)
Cooking coal is used for making stainless steel and therefore is considered as intermediate
goods and services
Part b
The nation’s GDP is known to be $800 billion since the problem already states that the
economy produces final goods and services with a market value of $800 billion in a given
year. The reason is that the gross domestic product is known to take into account the market
value of the goods and services produced despite the consequences of whether the products
are sold or not. The products which will be unsold are known to be added to the firm’s
inventories and are included in gross national investment.

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Q Q1
AS
1
A
S
PRICE
QUANTITY
P
P1
ECONOMICS
Part c
The new product is originally produced for the ultimate user which is included in the fiinal
goods and services. So the new truck is known as the final good that needs to be added in the
GDP (Iossa & Martimort, 2015). However, when the firm will be buying and using the new
truck, it will very easily become an intermediate good in to the production off other products
in subsequent periods.
Answer 5
Part a
Figure 1 Increase in supply
When there is an improvement in the marketing as well as in the selling skill of managers, the
aggregate supply of the economy will be increasing and will move to right. With the

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Q
A
S
PRICE
QUANTITY
P
P1
Q1
ADAD1
ECONOMICS
improvement in the skills, managers will be able to sell more number of goods which will
also increase the economic growth. As a result of this, there will be decrease the price level in
the economy.
Part b
Figure 2 Decrease in demand
When there is an increase in the personal income tax, people will be having less money in
hand to spend and therefore will be demanding less quantity of goods. Therefore, when the

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Q1
A
S
PRICE
QUANTITY
P
P1
Q
AD
AD1
ECONOMICS
personal income tax will be increasing, the AD curve will be decreasing and shifting to left.
As they will demand less quantity of goods, the quanity demanded will decrease to Q.
Part c
Figure 3 Increase in demand

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When there will be increase in the exports of the goods, people will be have more goods to
choose from which will increase the demand of goods. Therefore, when the demand of goods
will be increasing, the economy will be earning more income which also means that people
will have more money in hand to spend.
(d)
Figure 4 Decrease in supply
When there will be significant destruction in the capital stock of the economy due to war, the
supply will decline. The supply of goods will decrease which reduces the AS curve and shifts
it to the left. The supply curve will be moving left from AS to AS1 and the quantity produced
will also decrease as a result of war.
Answer 6
Part a
There are various advantages as well as disadvantages of the consumer price index.

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The advantages of the consumer price index are:
Economic predictor: the consumer price index helps the government for determining the
fiscal policy which will help in easing the supply of money or raising the rate of interest. CPI
in this way acts as an economic predictor of the country.
Influence: the CPI is known to influence the economy in many ways. The CPI also
determines the percentage of annual increase or decrease of the income. The government is
known to use the CPI for adjusting social security and also determine the income level of
consumers.
Disadvantages of CPI are:
One of the biggest disadvantage of CPI is that it is known to change over time. There is also
incidence overstating inflation in case of CPI since it will not take into account the
improvement in technology (Bade & Parkin, 2015). The third problem with CPI is that the
changes in the quality of services and goods are no very well handled.
Part b
There are both winners as well as loosers from inflation in the economy.
The winners of inflation are:
 The households with high amount of debt are known to win from inflation( McKenzie
Lee, 2016). Since high rate of inflation will make the households pay back the
outstanding debt much easier. The business can also increase price and then use the
revenue for paying debts.
 The stockholders are known to get protection from inflation since inflation is known
to increase the price of goods which also increases the company value.

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 Inflation can also make it much easier for the government for reducing the real value
of the debt.
The losers of the inflation are
 The savers are usually the one who loses from inflation since when there will be rise
in price which will lead to decline in the value of money and therefore the real value
of savings will decline. The workers who are stuck on fixed wage contracts are known to lose from inflation.
Inflation is also known to harm the workers in case of non unionised jobs.
Answer 8
(a)
The DVD recorders are considered as imported goods.
(b)
The insurance cover that is bought in nation is considered as capital transfer to the nation
from overseas.
(c)
When nation is supplying aid to the developing country is the short term financial outflow.
(d)
When the car company of US will be setting up factory it will be investment in the nation
from overseas..
(e)

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When the residents of nation’s take a holiday in Bali it is considered as short term capital
otflow
(f)
When interest is earned by the nation’s residents of overseas assets it is considered as capital
transfers to the nation from the overseas.
(g)
Running down stocks of foreign exchange in central bank of nation is considered as adding to
reserves.
(h)
When migrants of the nation transfers property to the nation it is considered as capital
transfer to the nation from overseas.
(i)
When new deposists are made in bank in the nation by the overseas residents it is considered
as investment in the nation from overseas.
( j)
When the palm oil of the nation is sold in the United Kingdom it is considered as exports of
goods.

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Reference list
Bade, R., & Parkin, M. (2015). Foundations of microeconomics. Pearson.
Baumol, W. J., & Blinder, A. S. (2015). Microeconomics: Principles and policy. Nelson
Education.
Iossa, E., & Martimort, D. (2015). The simple microeconomics of public‐private partnerships.
Journal of Public Economic Theory, 17(1), 4-48.
Karl, E., CASE, F., OSTER, R., & SHARON, E. (2019). PRINCIPLES OF
MICROECONOMICS. Pearson.
Martimort, D., Menezes, F., Wooders, M., Iossa, E., & MARTIMORT, D. (2015). The
Simple Microeconomics of Public-Private Partnerships. Journal of Public Economic
Theory, 17(1), 4-48.
McKenzie, R. B., & Lee, D. R. (2016). Microeconomics for MBAs: The economic way of
thinking for managers. Cambridge University Press.
Postlewaite, A. (2016). Report of the Editor: American Economic Journal: Microeconomics.
American Economic Review, 106(5), 736-39.

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