Macroeconomics Assignment 1 (ECON1010) - Analysis of Economic Factors

This assignment, part of an ECON1010 macroeconomics course, delves into core macroeconomic principles. It begins with short-answer questions analyzing a closed economy, exploring private and public savings, national savings, net exports, and investment. The assignment then investigates labor productivity, emphasizing the role of human capital through an example. Further analysis includes a discussion on Hans Rosling's Gapminder video, examining China's economic growth relative to the United States and the impact of free trade on developing economies. The assignment concludes with an examination of inflation adjustment and a report on automation's impact on unemployment, with a focus on potential policy responses. The assignment covers topics such as unemployment, productivity, economic growth, and financial systems.

Macro1 (ECON1010), Sem. 2 2017Question Set
MACRO1(ECON1010) Assignment 1
(Chapter 28, 26&27 Principles of Economics or Chapters 9,7 & 8 Principles of
Macroeconomics)
Submit online at the ‘Assessment Task’ in Blackboard
Due: 11:59PM on 10 September(Sunday)
Tutorial Time and Day: _______________________________________________________________________________________________
Student Name: ________________________________________________________________________________________________________
Student ID: _____________________________________________________________________________________________________________
This assignment covers the following topics:
 Unemployment (Chapter 28 or Chapter 9)
 Productivity and Growth (Chapter 26 or Chapter 7)
 Saving, Investment and Financial System (Chapter 27 or Chapter 8)
READ THE FOLLOWING FIRST (Very Important)
1. This assignment contributes to 20% of the overall marks for the course.
2. Only a single submissionpermitted (hence, please ensure to attach the file version of the
assignment)
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Macro1 (ECON1010), Sem. 2 2017Question Set
Short Answer Questions:
1. Consider a closed economy in which GDP equals $20 billion, consumption equals $13 billion, government
purchases equal $3 billon and tax revenue equals $1 billion. Use this information to answer the following
questions: (3 marks)
a. What is private savings equal to in this economy? (0.5 mark)
Private savings is termed as the savings done by the private people residing within the economy after using
their income for all essential and necessary activities (Larbi 2013).
Private savings= Y-T-C
Where, Y= GDP or income
C= Consumption
T= Tax paid by the citizens
Thus, Private Savings= $20 billion- $1 billion- $13 billion
Private Savings= $ 6 billion
Thus, it can be seen from the result that private savings in the economy is $ 6 billion
b. What is public savings equal to in this economy? (0.5 mark)
Public savings is the savings done by the government after the tax is earned and the deduction is made by the
expenditure it does in a year. It is seen that if the tax earning of the government is more than the spending
done by the government then there is budget surplus. This show that savings of the government is positive. On
the other hand, it is seen that if spending is more than the tax amount earned then there is budget deficit. On
other words, there are negative public savings. Further, if the spending of the government is equal to that of
tax revenue then it is called as balanced budget (Ahmad and Mahmood 2013).
Public savings- T-G
Where, T= Tax
G= government spending
Therefore, Public Savings= $1 billion- $3 billion
Public Savings= -$2 billion
Thus, it can be seen that there is negative public savings as tax revenue is less that government purchase,
which means there is budget deficit in the economy.
c. How would the level of public savings impact the supply of loanable funds? (0.5 mark)
Loanable find is a market where the people having the fund sell to those needing the loanable funds. Howver,
the loanable fund in the market is determined by the amount of national savings. The more the national saving
the more will be the fund available. Thus if public savings rises means there is an increase in the amount of
national savings as public saving is one of the component of national savings. Thus, any change in public
savings has a direct effect on availability of loanable fund in the economy.
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Macro1 (ECON1010), Sem. 2 2017Question Set
d. What is national saving equal to in this economy? (0.5 mark)
National savings is the combination of both private and public savings in the economy. On other words it is
also consists of components such as national income, consumption and government expenditure. It answers
the totals savings an economy has made in a year.
National savings= Private savings + Public savings
Or
National savings= Y-C-G
Where, Y= National income
C= Consumption
G= Government spending
National savings= - $2 billion+ $6 billion
National savings = $4 billion
Thus, it is seen that the national savings in a closed economy is $4 billion in a year
e. What are net exports equal to in this economy? (0.5 mark)
The net export will be zero in this economy because it is a closed economy. This means that the country does
not engage itself in any kind of trade with other countries or open to international market. Thus the export and
import of the country stands at zero. As net export is calculated by deducting import from the total export and
as both the variables are zero, this makes net export to be zero (Baron 2014).
Net export= Export – Import
Net export= 0-0
Net export= 0
Thus, there is no role of net export in the GDP of a closed country.
f. What is investment equal to in this economy? (0.5 mark)
Investment spending in economics means the total expenditure made by the economy on capital equipment
that can be used for various economic activities. The capital equipment can be of various forms and size and
the spending on them is incurred by the economy as a whole. In macroeconomics investment calculation is
included in the GDP formula (Coyle 2015).
Investment spending is a component of GDP including other components such as consumption, government
spending and net export.
It can also be stated in a formula such as, GDP= C+I+G+NX
Where C= consumption
G= government expenditure
NX= net export
However, it can be see that as it is a closed economy the NX will be zero. Thus, investment is only calculated
using GDP, government spending and consumption.
Investment= Y-C-G
Investment= $20 billion- $13 billion- $3 billion
Investment= $4 billion
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Macro1 (ECON1010), Sem. 2 2017Question Set
Thus, the total investment sending of the economy is $4 billion.
2. Explain how labour productivity is determined. In your answer address why human capital is
considered to be so vital to lifting labour productivity levels. To illustrate your understanding
provide an example. Your answer should be between ½ page and a full page. (4 marks)
Labor productivity is the total amount produced by the labor in a year. However, labor productivity of a
place is determined by the amount of economic growth in a country or real economic output. it can be
illustrated with the help of a example, suppose the GDP of a country is $10 billion and the total labor hour is
300 billion. Then labor productivity can be calculated by dividing GDP by the aggregate labor hour. This
gives a labor productivity of $33 per hour. On the other hand, it can be stated that human capital plays an
important role in the labor productivity because they are the one that work and produce labor per hour. Thus,
maintaining a good amount of human capital is important to get good aggregate labor hours. For example, if
the number of human capital in a country is 10 and aggregate labor productivity is 200 hours. Further,
suppose the number of human capital reduces to 5 hours then the aggregate labor will automatically reduce
further. This shows that in order to maintain a good amount of labor hours and productivity in a place it is
important that the country have adequate supply of human capital because they are the active part in the
process of production. This is because machine capital cannot work on own. They need an active support of
human in order to produce anything. Thus, for productivity human capital is important.
3. Watch the Gapminder video ‘200 Years that Changed the World’ available from
http://www.gapminder.org/videos/200-years-that-changed-the-world/ and answer the following
questions:
a. When Hans Rosling talks about China ‘catching up’ with the United States, explain in more detail
what he means by this? Your answer should be around ¼ of a page. (1.5 marks)
In the video, Hans Rosling is talking about the growth of various countries from 1880s to early 2000.
During the years, it was noticed that two countries such as china and United States is increasing the gap
between them. This is because United States was growing while china remains constant for a longer
period. However, he stated that the high-income country such as United States will start declining in
income as well as health and middle-income country such as china will continue to increase at a faster
rate. This will reduce the gap between the two countries (Barone 2016).
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Macro1 (ECON1010), Sem. 2 2017Question Set
b. How can free trade help middle income countries or emerging economies ‘catch up’ with the high
income or developed economies? Your answer should be ½ a page and include a relevant example.
(2 marks)
Free trade helps the economy to produce the products in which it has exerted competencies and expertise
and import the products, which it cannot produce. Thus if a country produces goods n which it has
competencies and export it for goods they needs, it will increase its income in a great way. This will
help them grow at a faster rate. On the other hand, trade will also help the developing countries to
access the resources of the other countries. However, it can match up with the high income countries
because developed countries has already exhausted its resources for producing goods it has comparative
advantage and thus slowly start to diminish. Thus, both the economy will slowly catch up with each
other with the help of free trade (Panayotou 2016).
c. On the y-axis of the visualisation Hans Rosling presents in the Gapminder video, income per person
is shown. What is an alternative label or term that we have used in the course that means the same as
income per person? (0.5 mark)
The other term for income per person as stated in the y-axis of the video can be stated in other term. On the
term learnt in the course for income per person is per capita income (Markusen 2013).
d. The income per person referred to in part c. above is ‘inflation adjusted’. Why is it necessary to
adjust this for inflation? Your answer a should be no longer that ¼ of a page (1 mark)
Inflation adjusted means that in a factor it is necessary to take the affect of inflation. Inflation affects per
capita income and thus it is inflation adjusted. This is because per capital income takes into
consideration the GDP of the country and an increase in inflation means that the price of factors of
production increases. This leads to an increase in total cost and price of the product. This means that at
this price, people will less demand the product and thus their income decreases.
4. Read the recent report released by the Foundation for Young Australians The New Work Order:
Ensuring young Australians have skills and experience for the jobs of the future, not the past.
Available online: file://ntapprdfs01n02.rmit.internal/eh2/E10092/https---www.fya.org.au-wp-
content-uploads-2015-08-fya-future-of-work-report-final-lr.pdf or via https://www.fya.org.au/our-
research/#report-downloads )
Having read the Report answer the following questions:
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Macro1 (ECON1010), Sem. 2 2017Question Set
a. The report identifies one the forces shaping the future as automation. Discuss how automation may
impact unemployment in years to come. In your discussion be sure to identify the type(s) of
unemployment it may lead to and comment on what policy makers can do to address this. Your
answer should be around ½ a page. (3 marks)
The introduction of automation in recent times will help the business to complete there work fast on
the other hand it will make it difficult for the people to get job easily. This is because automation
means that the companies will require less of labour and all their work will be done with the help of
the machine. Thus, they will reduce the amount of labour employed in their work. This in turn will
increase the level of unemployment in the economy. However, the type of unemployment caused
will be both disguised unemployment and voluntary unemployment. Disguise unemployment is
caused when the people are willing to work and does not get suitable work. Whereas, the other type
of people are not willing to work (Bessen 2016).
b. Globalisation is a dominant economic force that creates new opportunities but also presents some
challenges. Provide an example from Australia of an industry or sector of the economy that has
suffered job losses as a result of globalisation. In your answer explain why globalisation can create
unemployment in some industries or sectors of a national economy. Your answer should be around
½ a page. (3 marks)
Globalisation in an economy creates development in the operation process of a company. The capital
and machines used are of modern type and requires proper training. Moreover, with globalisation it
is becoming easy for companies to work without the labour they were previously having. Thus, they
reduce the amount of labour in their company and cause unemployment. One of the examples
showing maximum job loss in Australia due to globalisation is the manufacturing sector. This is
because with the advent of globalisation the company will start using machines for manufacture
products, thus, causing unemployment in Australia. Thus, this shows that even though globalisation
creates new opportunities for the industries, it increases the percentage of job loss for the workers
(Owen and Quinn 2016).
c. Comment on something you have found interesting from reading the Report (that differs from your
answers in parts a and b). Your answer should be in one long or two shorter paragraphs. (2 marks)
One of the most interesting thing according to me in this report was that with increasing automation
the work of the industries and workers are becoming easy; however, it is stated that the working
hours for the workers will increase more. Thus, it is realised that with automation and globalisation
the life of the people is going to be more difficult and time consuming. They will be spending more
time a work then at home.
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Macro1 (ECON1010), Sem. 2 2017Question Set
References
Owen, E. and Quinn, D.P., 2016. Does economic globalization influence the US policy mood?: A study of
US public sentiment, 1956–2011. British Journal of Political Science, 46(1), pp.95-125.
Ahmad, K. and Mahmood, H., 2013. Macroeconomic determinants of national savings revisited: A small
open economy of Pakistan. World Applied Sciences Journal, 21(1), pp.49-57.
Larbi, D.A., 2013. The long run determinants of private domestic savings in Ghana: a cointegration
approach. Journal of Economics and Sustainable Development, 4(4), pp.125-136.
Coyle, D., 2015. GDP: A brief but affectionate history. Princeton University Press.
Panayotou, T., 2016. Economic growth and the environment. The environment in anthropology, pp.140-148.
Markusen, J.R., 2013. Putting per-capita income back into trade theory. Journal of International
Economics, 90(2), pp.255-265.
Bessen, J.E., 2016. How computer automation affects occupations: Technology, jobs, and skills.
Barone, A., 2016. Managing Global Logistics for Business Growth: A guide for small to medium enterprises
pursuing the global market growth through cross-border trade (export/import). Buoyant Capital.
Baron, D.P., 2014. The Export—Import Bank: An Economic Analysis. Academic Press.
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