Bachelor of Applied Management Economics Assignment

This economics assignment from a Bachelor of Applied Management course assesses understanding of macroeconomic concepts, government impact, and international trade. Section A focuses on CPI and GDP calculations, including real vs. nominal GDP and its limitations. Section B examines aggregate demand and supply determinants, analyzing shifts in these curves based on various economic scenarios, including migration impacts. It also explores the effects of changes in business confidence and household savings on real GDP, inflation, and unemployment. Section C discusses the advantages and disadvantages of economic growth, monetary and fiscal policies, and their potential impacts on the New Zealand economy. Finally, Section D analyzes international trade, comparative advantage, and balance of payments, including the effects of trade on consumers and producers and how to categorize transactions in the Balance of Payments. The assignment requires the use of AD/AS models and real-world economic analysis to demonstrate understanding of the subject matter.

Running head: ECONOMICS PAGE \* MERGEFORMAT 1
ECONOMICS
Name:
Institution:
Date:

ECONOMICS PAGE \* MERGEFORMAT 19
Economics
SECTION A.
Q1. CPI
Explain what CPI measures.
A government will use Consumer Price Index to measure inflation. Inflation is the overall
rise in price or cost of goods and services in a given economy. It is also the average variation of
prices over time rewarded to a persistent market basket of consumer goods and services. The
change out of hundred in CPI is used to measure the Inflation CITATION Ber18 \l 1033
(Bernanke, Laubach, Mishkin, & Posen, 2018).
How CPI is calculated CITATION Ros18 \l 1033 (Rossanty, Hasibuan, Napitupulu, Nasution, &
Rahim, 2018).
CPI =
P2
P 1׿ ¿ 100 Where P2 is the price of goods and services in a given year
P1 is the price of goods and services in the base year.
Q2. GDP
a. Use the data to
calculate the value of
Gross Domestic
Product (GDP). Show
your workings.
$m
Compensation of employees 18 900
Gross operating surplus 15 700
Final government consumption expenditure 6 200
Final household consumption expenditure 23 100
Changes in inventories 1 300
Gross fixed capital formation 9 500
Taxes on production and imports 4 500
Subsidies 600
Exports 13 300
Imports 15 100
Statistical discrepancy 200

ECONOMICS PAGE \* MERGEFORMAT 19
GDP = Total National Income + Sales Taxes + Depreciation + Net Foreign Income
GDP = 18,900+15,700+9,500+13,300-15,100-600
= 41,700
a. Complete the table indicate whether or not the situations are included or excluded during
calculation of GDP.
Situation Included or Excluded
(in the calculation of GDP)
(i) The voluntary work of a group in cleaning up a local
reserve. Excluded
(ii) Activities of the underground economy. Excluded
(iii) The purchase of alcohol for a party. Included
(iv) The money spent on cleaning up the mess resulting
from a road accident and hospital care for injured
passengers.
Included

ECONOMICS PAGE \* MERGEFORMAT 19
(v) The proceeds from illegal activities that do not go
through a market. Excluded
(vi) Spending by the government on new motorways out
of all the main centers. Included
(vii) A student renting a video for the weekend. Included
(viii) Non-market activity such as growing your own
vegetables or paving your own driveway. Excluded
(ix) A business upgrading its computer network. Included
(x) An electrician does the wiring for his neighbor (a
plumber) in exchange for unblocking his drain, i.e.
payments in kind.
Excluded
(xi) A builder build a block of flats. Included
(xii) Paying for electricity. Included
b. Give two reasons why the official figures for National Income (GDP) may understate
the true level of economic activity. (2 marks)
1. It does not include non-market activities
2. It does not include illegal activities for instance smuggling.
c. Why is GDP calculated in both real and nominal terms? (1 mark)
In order to cater for inflations in an economy or differences in price level
d. What does Real GDP per capita show? (1 mark)
It’s the overall monetary production of a country over the total population after the
inflation has been taken care off.

ECONOMICS PAGE \* MERGEFORMAT 19
e. Explain two limitations of Real GDP per capita as a measure of a country’s economic
well-being CITATION Cha18 \l 1033 (Chang, Gupta, & Miller, 2018). (2 marks)
1. It only measures production of goods and services in a legal market.
2. It does not include benefits derived as a results of rise in leisure time.
SECTION B.
1. Use your knowledge of the AD determinants to indicate the direction the aggregate
demand curve will shift for the situations given in the table below. If the aggregate
demand curve does not shift place a cross (X) in the space provided
Situation
Direction that AD
shifts inward or
outward
AD curve does not
shift place a cross (X)
(i) Income tax rates decrease OUTWARDS
(ii) A rise in business confidence OUTWARDS
(iii) A larger than expected budget surplus INWARDS
(iv) Interest rates rise as the OCR is raised INWARDS
(v) The government announces that GST will
increase in six months time X
(vi) New technology OUTWARDS
(vii) Costs of production fall OUTWARDS
(viii) A fall in business confidence INWARDS
(ix) Transfer payments are increased OUTWARDS
(x) Next exports $1 912m surplus OUTWARDS
(xi) The Reserve Bank Governor lowers the
OCR and interest rates fall OUTWARDS
(xii) Contractionary fiscal policy INWARD
(xiii) A net migration loss X
(xiv) A budget surplus INWARDS
(xv) A large increase in households starting to
save for their retirement OUTWARDS

ECONOMICS PAGE \* MERGEFORMAT 19
(xvi) Consumers go on a spending spree fearing
price rises in the future INWARDS
2. Use your knowledge of the AD determinants to indicate which direction the aggregate
supply curve will shift for the situations given. If the aggregate supply curve does not
shift place a cross (X) in the space provided
Situation
Direction that AS
curve will shift inward
or outward
AD curve does not
shift place a cross (X)
(i) New technology is developed OUTWARDS
(ii) Workers’ productivity falls as machinery
wears out and depreciates INWARDS
(iii) Workers’ wages rise OUTWARDS
(iv) New Zealand dollar appreciates resulting in
a fall in the price of imported raw materials OUTWARDS
(v) The government runs a budget surplus INWARDS
(vi) Rising oil prices INWARDS
(vii) An increase in investment spending by
firms OUTWARDS
(viii) Household incomes fall INWARDS
(ix) An increase in GST INWARDS
3. 2017 and 2018 figures for NZ show that net migration is increasing. Keeping this fact in
mind. Show the impact of this on the economy. In your answer you should:
I. Draw and fully label an AD/AS model to show the effect of migration changes.
EFFECT OF MIGRATION CHANGES

ECONOMICS PAGE \* MERGEFORMAT 19
II. Explain the changes to the AD and AS curves (6 marks)
In the short run, the short run aggregate curve shifts outwards, the price level goes down.
When the wage rate remains constant the GDP rise CITATION Rom18 \l 1033
(Romanowska & Smith, 2018).
4. Assume that an economy is operating at a moderate level of capacity utilization, analyses
the effects on real GDP, inflation (CPI), and unemployment level of the following events.
Draw sketch graphs to support your findings
a. A fall in business confidence
AD-AS MODEL

ECONOMICS PAGE \* MERGEFORMAT 19
Effect on:
Real GDP- leads to decrease in GDP
Inflation (CPI). – No effect on inflation
Unemployment level – increases
b. A large increase in households starting to save for their retirement.

ECONOMICS PAGE \* MERGEFORMAT 19
Effect on:
Real GDP- leads to increase in GDP
Inflation (CPI). – No effect on inflation
Unemployment level – decreases
c. A rise in business confidence
Effect on:
Real GDP- leads to increase in GDP
Inflation (CPI). – No effect on inflation
Unemployment level – decreases

ECONOMICS PAGE \* MERGEFORMAT 19
5. i) Draw an AD/AS model to show the economy close to full employment, i.e., actual
national income falls short of the economy’s potential national income. Label the
recessionary or inflationary gap.
(ii) Show the effect of an increase in transfer payments. Label the new equilibrium price
level
Explain the effects of an increase in transfer payments on inflation and economic growth. Refer
to your graph (3 marks)
The increase in transfer payment has no effect on inflation but has an effect on the
economic growth the price of goods and services increases while the quantity demanded also
increases.
S
D1
D
P2
P1
Q1 Q2
Quantity
Price

ECONOMICS PAGE \* MERGEFORMAT 19
SECTION C.
Q1. Although economic growth is beneficial to a country, faster growth can be harmful. There is
call from the Labor party to restrict foreign buyers from buying NZ property. At the same time
the leader of NZ First party is calling on the government to reduce net migration to NZ. Discuss
one advantage and two disadvantages in New Zealand due to faster economic growth of the
property market and how does it affect to government’s macroeconomic objectives?
(6 marks)
Advantages
a. Importation can lead to product specialization, in that country will focus its energy in
goods and services that they are good at producing.
b. Importation means that it is cheaper to purchase from outside than produce locally.
c. Importation means that the resident of importing country will gain access to goods and
services that the country does not produce.
Disadvantage
a. There is price conflicts for similar products available locally.
b. There is a higher tendency of crippling the domestic industry.
c. Imports can lead to flooding of goods and services in a country.
Q2. Monetary Policy

ECONOMICS PAGE \* MERGEFORMAT 19
Q3. Fiscal policy.
What the intention of monetary policy is and what role does the OCR play in NZ?
-There is more money in circulation than the require hence banks lower the interest rate to attract
the borrowers, who will invest and inject more money in economic activities hence increasing
the output and hence the GDP will rise too CITATION Kap18 \l 1033 (Kaplan, Moll, &
Violante, 2018).
What type of monetary policy is being conducted above?
-Expansionary policy
What might the potential impact of this policy be in the NZ economy?
a. Its purpose is to increase aggregate demand and economic growth in the economy.
b. It includes cutting rates and increasing money supply to boost the economy.
c.
Q3. Fiscal Policy