University Economics Assignment: Macroeconomic Analysis

This economics assignment solution covers key macroeconomic concepts. It begins by differentiating between Net Domestic Product (NDP) and Gross Domestic Product (GDP) and their implications for economic well-being. The solution then explores different types of inflation, including demand-pull and cost-push inflation, and their causes. It also analyzes unemployment, discussing the natural rate of unemployment and the distinctions between cyclical and structural unemployment. Furthermore, the assignment investigates the impact of various economic factors, such as marketing skills, personal income tax, exports, and war on aggregate demand and supply. Finally, the solution examines the advantages and disadvantages of using the Consumer Price Index (CPI) and identifies the winners and losers of inflation, offering a comprehensive overview of macroeconomic principles and their practical applications.

Running head: ECONOMICS
Economics
Name of the Student
Name of the University
Student ID

1ECONOMICS
Table of Contents
Answer 1..........................................................................................................................................2
Answer a......................................................................................................................................2
Answer b......................................................................................................................................2
Answer c......................................................................................................................................2
Answer d......................................................................................................................................2
Answer e......................................................................................................................................3
Answer f.......................................................................................................................................3
Answer g......................................................................................................................................3
Answer h......................................................................................................................................3
Answer i.......................................................................................................................................4
Answer j.......................................................................................................................................4
Answer k......................................................................................................................................4
Answer l.......................................................................................................................................5
Answer 3..........................................................................................................................................6
Answer a......................................................................................................................................6
Answer b......................................................................................................................................7
Answer 4..........................................................................................................................................7
Answer a......................................................................................................................................7
Answer b......................................................................................................................................8
Answer c......................................................................................................................................8
Answer 5..........................................................................................................................................9
Answer a......................................................................................................................................9
Answer b......................................................................................................................................9
Answer c....................................................................................................................................10
Answer d....................................................................................................................................11
Answer 6........................................................................................................................................12
Answer a....................................................................................................................................12
Answer b....................................................................................................................................12
References......................................................................................................................................13

2ECONOMICS
Answer 1
Answer a
GDPIncome Method=Return¿ labor+ profit of firms+ other factors rental
¿ 2651+1687+ 482
¿ $ 4820 billion
Answer b
GDPExpentituremethod=Consumption+Investment +Government+ Export−Impor
¿ 3115+785+210+585+ 690−565
¿ $ 4820 billion
Answer c
Gross National Expenditure(GNE)=Consumption+Government +Investment
¿ 3115+210+585+785
¿ $ 4695 billion
Answer d
Net Domestic Product ( NDP )=GDP−consumption of ¿ capital
¿ 4820−320
¿ $ 4500 billion
Answer e

3ECONOMICS
Net Domestic Products (NDP) include the effect of depreciation while GDP does not
include depreciation. In an economy, if GDP increases because of increased depreciation that
higher GDP does not make people better off (Carlin & Soskice, 2014). Because of this, NDP is
often considered as a better measure of well-being compared to GDP.
Answer f
Gross National Product (GNP)=GDP−net factor income paid abroad
¿ 4820−34
¿ $ 4786 billion
Answer g
Net National Product ( NNP )=GNP−consumptionof ¿ capital
¿ 4786−320
¿ $ 4466 billion
Answer h
Current account balance=Export−import−factor payment abroad
¿ 690−585−34
¿ $ 91 billion

4ECONOMICS
Answer i
Gross national saving ( GNS )=GNI−C−G
¿ $ 4786−$ 3115−$ ( 585+210 )
¿ $ 4786−$ 3115−$ 795
¿ $ 876 billion
Answer j
National saving=Private saving+Public saving
¿ ( Y −T −C ) + ( T −G )
¿ ( $ 4820−$ 17−$ 3115 ) + ( $ 17−$ 795 )
¿ $ 1668−$ 778
¿ $ 890 billion
Answer k
Suppose, the consumption function is given as
C=a+ bY
¿ , 3115=a+0.63 × $ 4820
¿ , 3115=a+3036.6
¿ , a=3115−3036.6
¿ , a=78.4

5ECONOMICS
When GDP changes to $4873, then the new consumption becomes
C=78.5+ ( 0.63 × $ 4873 )
¿ $ 78.5+$ 3069.99
¿ $ 3148.39 billion $ 3148 billion
Answer l
New Export=690+4=$ 694 billion
New Private investment =785−3=$ 782 billion
Government Consumption=585−3=$ 582 billion
Government investment=210+4=$ 214 billion
Gross Domestic Product=C + I+G+ X−M
¿ 3115+782+582+214+ 694−565
¿ $ 4822 billion

6ECONOMICS
Answer 3
Answer a
Demand-pull inflation is one that is caused by excess demand. As people get more
money they can pay more for goods and services, which raises overall demand, resulting in an
increase in price.
Figure 1: Demand-pull inflation
Cost-push inflation on the other hand is one that is caused by supply side disruption
ocurrd due to an increase in cost of production.

7ECONOMICS
Figure 2: Cost-push inflation
Answer b
A sharp rise in consumption and investment with a positive business environment
increases aggregate demand causing demand-pull inflation. Another reason for demand-pull
inflation is currency depreciation. As currency depreciates price export falls, which boosts export
demand.
One primary reason of cost-push inflation is an increase in wages. As labor is one
primary input in production, an increase in wage increases production cost causing cost-push
inflation (Argy, 2013). Another factor leading to cost-push inflation is the increased price of
some of the key inputs such as oil, energy, steel and others.
Answer 4
Answer a

8ECONOMICS
Policymakers should not target to achieve rate of unemployment to be zero as zero
unemployment would be a terrific condition of citizen of country. The three types of
unemployment that an economy commonly experience are cyclical unemployment, frictional
unemployment and structural unemployment. Of these structural and frictional unemployment
form natural rate of unemployment that is desired for the economy. Zero unemployment
therefore is not a positive thing for the economy. Positive unemployment implies the price the
economy pay for structural and technological development contributing to economic prosperity.
Answer b
Long-term unemployment from view point of classical economists’ is a temporary and
voluntary. The economy in the long run achieves full employment equilibrium. Even though the
economy deviates from equilibrium, it is a short-term phenomenon and the economy retains it
full employment y following a self-adjustment mechanism (Gottheil, 2013).
Answer c
Structural unemployment in an economy is caused due to a structural shift in the
economy, technological improvement and lack of required skills of workers making it difficult
for the workers to find suitable jobs. Cyclical unemployment in contrasts caused due to business
cycle fluctuation.
Structural unemployment is a matter of great concern as if not addressed properly, and
then it can create long-term unemployment, which is harmful for an economy.

9ECONOMICS
Answer 5
Answer a
As firm managers have better skills of marketing and selling, they convinced customers
in a better way to buy different goods and services. This increases aggregate demand resulting in
an increase in real GDP and inflation.
Figure 3: Improvement in marketing and selling skills
Answer b
Increase in personal income tax lowers disposable income which in turn reduces
consumption spending resulting in a decrease in aggregate demand. As aggregate demand
decline, both GDP and price level contract.

10ECONOMICS
Figure 4: Increase in personal income tax
Answer c
As export increases, there is an increase in net export, which increases aggregate demand
of the economy. With increase in aggregate demand, GDP and price level increases.

11ECONOMICS
Figure 5: Increase in export
Answer d
If capital stock destructs due to war then there is disruption in aggregate supply. As
aggregate supply lowers equilibrium, GDP falls while price level increases.
Figure 6: Destruction of capital because of war