Economics Assignment: Evaluating Economic Policies and Indicators

This economics assignment delves into various aspects of macroeconomic policy and regulation. It begins by evaluating the Genuine Progress Indicator (GPI) as an alternative to GDP, highlighting its strengths and weaknesses in measuring economic growth, particularly for a nation like Fiji. The assignment then examines the impact of corporate tax cuts in Australia, using the Keynesian Cross diagram to illustrate how such policies can stimulate investment and increase overall productivity. Finally, it explores the effects of Free Trade Agreements (FTA) and import tariffs, demonstrating how tariff imposition by a country like the US can influence international trade dynamics, potentially boosting domestic industries while affecting the economies of trading partners. The analysis is supported by relevant economic theories and diagrams to provide a comprehensive understanding of the topics. Desklib provides a platform for students to access this assignment and other solved papers for academic support.

Running head: ECONOMICS ASSIGNMENT
Economics assignment
Name of the student:
Name of the University:
Author note

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Table of Contents
Answer 1:...................................................................................................................................3
Answer 2:...................................................................................................................................4
Answer 3:...................................................................................................................................5
Reference:..................................................................................................................................7

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Answer 1:
Genuine Progress Indicator (GPI) is one of the metric utilised in order to measure the
economic growth of an economy. It was developed as the alternative measurement of the
Gross Domestic Product (GDP) measurement of the economic development. In order to
overcome the deficiencies of the GDP measurement, GPI was introduced during 1950, which
aids the policy makers to determine the growth path of the economy (Worstall 2014). While
broadening the conventional framework of accounting it includes the economic contributors
of the community and family in order to trace the development path of a said economy. GPI
is calculated depending upon more than 20 factors that aids the respective government and
policy makers to determine the genuine progress of the economy. As the factors of
calculating GPI it utilise environmental as well as social factors, which was overlooked by
the earlier methods of national development matrices. As the proper calculation regarding the
growth path of the economy, GPI integrates all the factors into a composite measures in order
to measure the benefits of economic activities within the domestic as well as foreign activities
of the national residents is weighted against cost that provide better outlook of development
(Kubiszewski et al. 2015). Though GPI is one of the best available measure of the economic
development of an economy, yet it has various issues regarding with the same. As an instance
it can be seen that GPI utilise non-economic variables like leisure time as well as
environment, which are subjective in nature and thus provides difficulties in calculating the
economic value of an economy (Kubiszewski and Costanza 2015). Normative nature of the
other matrices that determine the national growth path of an economy are simple in nature
and easy to calculate that provides them ability to determine the growth path with simplicity.
Another disadvantage of the GPI measurement is that it fails to judge an economy with the
business cycle which constrains its capability to predict the future trend of growth (Talberth
and Weisdorf 2017). Considering the facts mentioned above, it can be said that GPI is one of

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AD
Y0
Y
Y=AE
P0
P1
Y1
AE1
AE0
the most adequate measurement of national development for Fiji, whereas, it will fail to
determine the growth of the economy during long according to the business cycle theory.
Answer 2:
Tax cut is often considered as a boost to the investment capacity of the firms. Under a
corporate tax cut from the government, it can be seen that there will be rise in the disposable
income to the firm that will allow them to enhance their capability of investment leading to
rise in the productivity. Considering the given situation, if the government of Australia
impose the proposed corporate tax cut, then it will allow the firms to invest more in their
growth path. This situation can be explained through the Keynesian Cross diagram that depict
the relationship between the real GDP and aggregate supply (Bilbiie 2017). With the
Aggregate expenditure curve at 450 angle with the base this diagram depicts the situation in
case of rise in factors of production. in case of change in consumption, government
expenditure, investment and in total trade AE curve shifts and depicts the new equilibrium
point of market that determine the price and the new output level (Makin 2018).
Figure 1: Keynesian Cross diagram
Source: (Created by Author)

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P2
P0
S
DP1
P
E1 E2 E2’ E1’
E
E0
As it can be seen from the figure 1, if there is fall in the corporate tax, then it will
reduce the tax burden on the firm allowing the firm to expend higher because they will have
higher mount of disposable income. If the initial aggregate expenditure is AE0, then at P0
price, the firm will produce Y0 amount of good. On the other hand, if there is rise in the
expenditure, then it will shift the aggregate expenditure curve from AE0 to AE1 leading to
rise in the output from Y0 to Y1. Thus, as per the given information, if the Australian
government imply the proposed Corporation tax cut, then it will enable the firms within the
domestic environment to enhance their output from the present level of production to higher
amount of output (Dullien et al. 2018).
Answer 3:
Under the introduction of Free Trade Agreement (FTA) it was argued by signatory
nations to abolish the import tariff so as to provide the international traders a level playing
ground in the market of different markets (Cruz and Bussolo 2015).
Figure 2: Effect of tariff
Source: (Created by Author)

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Considering there are two nations A and B and they perform trade between them.
Now, if country A impose import tariff, then it will undoubtedly enhance the price of the
importable within the domestic market leading to fall in demand of the same. Figure 2 show
that, if the domestic aggregate demand of one good that country A import is D and the supply
of the same is S, then market equilibrium will take place at the point where market clearing
price will be P0 and the output will be E0; however, if it is assumed that prevailing market
price is P1, then producers will produce only E1 amount of the good and in order to fulfil the
market demand at price P1, economy will import E1E1’ amount of the same good. Under this
situation, if country A impose a tariff on the importable, then it can be seen that the price will
be P2. At the new price, there will be fall in the demand of the good, whereas, producers will
enhance their supply leading to fall in the total import of the same good (Elsheikh et al.
2015). As it can be seen from the figure 1, at P2 price, country A will import only E2E2’
amount of the said good leading to fall in the export of country B. it will impact on the
national income, trade balance and other macroeconomic factors of the country B. Thus, in
case of tariff imposition by US economy, there will be fall in the import and it will provide
performance boost to the domestic economy. In addition to this, tariff imposition will allow
the importing nation to provide ability to their domestic producers to become mature so as to
compete against the international firms and on the other hand it will lead to fall in the income
of the foreign traders (Kutlina 2017).

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Reference:
Bilbiie, F.O., 2017. The New Keynesian cross: Understanding monetary policy with hand-to-
mouth households.
Cruz, M. and Bussolo, M., 2015. Does input tariff reduction impact firms' exports in the
presence of import tariff exemption regimes?. The World Bank.
Dullien, S., Goodwin, N., Harris, J.M., Nelson, J.A., Roach, B. and Torras, M., 2018.
Macroeconomics in Context. Routledge.
Elsheikh, O.E., Elbushra, A.A. and Salih, A.A., 2015. Economic impacts of changes in
wheat’s import tariff on the Sudanese economy. Journal of the Saudi Society of Agricultural
Sciences, 14(1), pp.68-75.
Kubiszewski, I. and Costanza, R., 2015. Measuring Genuine Social Progress. In The
Sustainability Practitioner's Guide to Social Analysis and Assessment. Common Ground
Publishing.
Kubiszewski, I., Costanza, R., Gorko, N.E., Weisdorf, M.A., Carnes, A.W., Collins, C.E.,
Franco, C., Gehres, L.R., Knobloch, J.M., Matson, G.E. and Schoepfer, J.D., 2015. Estimates
of the Genuine Progress Indicator (GPI) for Oregon from 1960–2010 and recommendations
for a comprehensive shareholder's report. Ecological Economics, 119, pp.1-7.
Kutlina-Dimitrova, Z., 2017. The economic impact of the Russian import ban: a CGE
analysis. International Economics and Economic Policy, 14(4), pp.537-552.
Makin, A.J., 2018. Macro-foundations for Fiscal Analysis. In The Limits of Fiscal Policy (pp.
15-29). Palgrave Pivot, Cham.
Talberth, J. and Weisdorf, M., 2017. Genuine progress indicator 2.0: pilot accounts for the
US, Maryland, and City of Baltimore 2012–2014. Ecological Economics, 142, pp.1-11.

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Worstall, T. (2014). The Problems With Using GPI Rather Than GDP. [online] Forbes.com.
Available at: https://www.forbes.com/sites/timworstall/2014/06/05/the-problems-with-using-
gpi-rather-than-gdp/#2c1f03d952a5 [Accessed 12 Jul. 2018].