Economic Evaluation Assignment: Analysis of Economic Proposals

This document presents a solution to an economics assignment focusing on economic evaluation. The assignment requires the analysis of two economic proposals (A and B) considering factors such as GDP, investment levels, and the impact of a global financial crisis. The student calculates the marginal propensity to save, determines the implications of increased consumption, and identifies the investment level at which the student would be indifferent between the two proposals. The solution includes calculations and explanations to support the student's recommendations, demonstrating an understanding of Keynesian and Neoclassical economic principles. The solution also addresses the impact of inflation and changes in consumption patterns on the recommendations, providing a comprehensive analysis of the economic scenarios presented in the assignment.

Name:
Student #:
49003 ECONOMIC EVALUATION
Assignment #1 (Autumn 2019)
Due date: 26 April 2019
ANSWER-TEMPLATE
1. Provide a summary of the economic performance of the country - in the Table below.
(7 Marks)
2008 2013 2018 2023
WITHOUT
INVESTMENT GDP Deflator 25 1 47 82
Nominal GDP 600bn 920bn 750bn 1000bn
Real GDP (2018 prices) 2400bn 920bn 1850bn 1250bn
WITH
INVESTMENT
A Real GDP (2018 prices)
3000bn 1070bn 750bn 1250bn
B Real GDP (2018 prices) 2750bn 2050bn 1980bn 1500bn
Notes: 1) Base year for GDP Deflators is 2013.
2) All entries in this table must be rounded-off to the nearest zeros, i.e., no decimal points.
2. Which proposal will you recommend? (3 Marks)
A B Either Neither
Why?
A
Because with investments the economy will grow rapidly over time.
(no more than 10 words)

3. Is the proposal, in this assignment, to invest in infrastructure based on Keynesian or Neo-
classical reasoning? (3 Marks)
Keynesian Neo-classical Either Neither
Keynesian
Why? Because it assumes the benefits will exceed the costs. (no more than 10 words)
4. What value of ‘Marginal Propensity to Save’ is implicit in your calculations for proposal B?
(3 Marks)
Please present your calculations here (just two steps of calculations)?
Mpc= change savings ÷ Change in income
2018 - 2013 Change in Investments = change in savings
120-150= -30
Change in income approximated to change in government expenditures
150-100= 50
Hence MPC = -30 ÷ 50 = 0.6
5. Will your recommendation change if, say, due to unforeseen Global Financial Crises, the
economy experiences very high inflation and - as a result – the GDP Deflator for 2023
becomes 300? (3 Marks)
Yes No
Yes

Why? Because less investments will mean less money in circulation (no more than 10
words)
6. Will your recommendation change if, for Proposal A, people increased their annual
consumption by exactly the same amount as increase in their annual incomes (as shown in
Table 1 of the assignment)? (3 Marks)
Yes No
No Why? Because consumption will use goods and service produced from investments.
(no more than 10 words)
7. For what value of investment (currently investment is $40bn, expressed in 2013 prices) will
you become indifferent between recommending Proposal A or Proposal B?
(3 Marks)
$bn
Please present your calculations to support your answer.
At 100bn $, one will be indifferent between proposals A and B as shown below
Proposal A with 100bn investment level, GDP will be equal to
1150 + 100 = 1250bn $
Proposal B without escalated investments
1150+ 40 + 60 = 1250bn $
Annexure