BUSN 5620 - Current Economic Analysis: GDP, Investment & Consumption

This assignment provides an economic analysis focusing on GDP growth, investment, and consumption, referencing the impact of life expectancy and death rates on GDP. It calculates the effects of increased investment and decreased consumption on GDP growth using provided economic parameters. The assignment further explores economic freedom by comparing the U.S. to countries in South America and Europe, using the Heritage Foundation's Index of Economic Freedom. Finally, it examines GDP composition by end-use for the United States, Switzerland, Sweden, and Hong Kong, drawing data from the CIA World Factbook, highlighting differences in household consumption, government consumption, investment, and trade activities across these nations. This document is available on Desklib, a platform offering a variety of academic resources for students.

Running head: CURRENT ECONOMIC ANALYSIS
Current Economic Analysis
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CURRENT ECONOMIC ANALYSIS
Table of Contents
Problem 1...................................................................................................................................3
Problem 2...................................................................................................................................3
a) Increase in Investment.......................................................................................................3
b) Decline in Consumption....................................................................................................4
Question 1..................................................................................................................................4
Question 2..................................................................................................................................6
References..................................................................................................................................7
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CURRENT ECONOMIC ANALYSIS
Problem 1
After analyzing article ‘Improved Living Standards’ scenario, life expectancy and death rate
has been Identified as two items on the list, which contributes to the GDP rate. It has been
observed that life expectancy has been increased in the U.S, whereas the death rate has been
reduced. In this context, more birth rate can increase the population of a country. Hence,
more population indicates more individuals working within the market. Appropriate GDP of
a country such as the U.S. can provide adequate per capita income. Therefore, more people
can lead to generating high productivity. Additionally, high productivity provides high GDP
within the nation. At the same time, reasonable per capita income significantly increases
healthcare treatments and reduce the death rate. Based on the above information, it can be
asserted that only proper GDP can hike the birth rate and reduce death rate within the
economy. However, this type of economic phenomenon has been observed in developed
countries. In developing countries, it can work inversely (Biciunaite, 2014).
Problem 2
a) Increase in Investment
According to the question, 3% increase in the investment can lead to 1% GDP increase.
Hence, the formula of growth rate is,
(Recent Year GDP - Previous Year GDP/Previous Year GDP)/100. Based on this formula if
growth rate 2% increases then the GDP also increases {(GDP=12*2%) =0.24}. Thus, second-
year GDP is (12+0.24=12.24) is the next year GDP.
As per the formula,
(12.24-12/12)*100
= (0.24/12)*100
=0.02*100
=2%
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CURRENT ECONOMIC ANALYSIS
Based on the above condition, 1% GDP growth=3% investment. Hence, 2% GDP growth=
(3%+3%). Thus, a total of 6% investment will increase if growth rate of GDP rises.
b) Decline in Consumption
In the case of consumption,
Investment= 6%
GDP =$12 trillion
(12*6%) = 0.72
Previous Investment= $10 trillion (10+0.72)
Add: 0.72= 10.72
Now, (10.72+2), here 2 is previous consumption
Thus, the GDP will figure out 12.72, which is higher than the 12.24.
Therefore, (12.72-12.24)
= 0.48
Hence, consumption will decrease (2-0.48),
= 1.52
Henceforth, (1.52+10.72)
= 12.24
Question 1
Figure 1: Economic Freedom Index of America, the U.S, and Europe
(Source: The Heritage Foundation, 2018)
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CURRENT ECONOMIC ANALYSIS
Economic freedom can be justified as a power or ability to lead an economy based on the
country requirements. Through economic freedom, a country changes its policy for
development. The reasonable situation of the free economy can initiate a free trade, free
enterprise, and free private property. In this case, free denotes the economic rights to acquire
goods as well as services without any forces or fraud. Hence, a significant volume of
economic freedom reflects the high standard of living, income equality, and less violence
within the economy. According to the above graph (Figure 1), it has been identified that the
overall score of the U.S’s economic freedom is higher than the others. In case of in the
country will be developed in future, as GDP growth rate of the US is 1.6%. Thus, it signifies
that country will be able to achieve its growth, which is reasonable enough for the country’s
development. However, GDP growth rate of Europe, as well as the US, is 2.2% is (Trading
Economics, 2018; County Economy, n.d.). However, the US maintains its economic of
freedom is always up to the mark. Hence, it will grow in the upcoming future.
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CURRENT ECONOMIC ANALYSIS
Question 2
According to the question,
Countries
Factors
United States Switzerland Sweden Hong Kong
household
consumption
69.1% 53.7% 44.2% 67%
government
consumption
69.1% 11.5% 25.4% 9.8%
investment in
fixed capital
16.3% 24% 25.3% 22%
investment in
inventories
0.3% -0.7% 0.3% 0.4%
exports of
goods and
services
12.2% 67.5% 45.5% 176.4%
imports of
goods and
services
-15.1% -56% -40.7% -175.6%
Table 1: GDP composition by End-Use
(Source: Central Intelligence Agency, 2018)
According to the above table 1, the US and Hong Kong have significant household
consumption with respect to other countries. On the other hand, the US and Sweden have
rational government consumption in comparison with the others. In case of the investment in
fixed capital, Sweden has performed better than the others. Conversely, Hong Kong performs
better in investment in inventories. Simultaneously, Hong Kong also performed tremendously
in exports and import of goods as well as services within the country.
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CURRENT ECONOMIC ANALYSIS
References
Biciunaite, A., 2014, Economic growth and life expectancy – do wealthier countries live
longer?, Articles, viewed 10 October 2018,
<https://blog.euromonitor.com/2014/03/economic-growth-and-life-expectancy-do-wealthier-
countries-live-longer.html>
Central Intelligence Agency, 2018, The world factbook, Resources, viewed 10 October 2018,
< https://www.cia.gov/library/publications/resources/the-world-factbook/geos/hk.html>
County Economy, n.d., United States (USA) GDP - gross domestic product, CPI, viewed 10
October 2018, < https://countryeconomy.com/gdp/usa?year=2017>
The Heritage Foundation, 2018, Graph the data, Index of economic freedom, viewed 10
October 2018, <https://www.heritage.org/index/visualize>
Trading Economics, 2018, European Union GDP annual growth rate, Markets, viewed 10
October 2018, <https://tradingeconomics.com/european-union/gdp-annual-growth-rate>
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