Economics Assignment: Macroeconomic Concepts, NZ Economy, Semester 1

This economics assignment delves into various macroeconomic concepts and their applications within the context of the New Zealand economy. Section A examines the Consumer Price Index (CPI) and Gross Domestic Product (GDP), exploring their calculation methods and significance. Section B an...Read More

Running head: ECONOMICS
Economics
Name of the student
Author note

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Section A
Question 1
The consumer price Index is New Zealand is known to examine the price change of the given
basket of services as well as goods which the citizens of the country buy (Smith, Jennings &
Patiar, 2016). The cost price index for the present year is known to be calculated by dividing
the price of the basket in the present year by price of desired basket in the base year.
Question 2
Part a
The gross domestic product calculated in the expenditure method by adding investment,
consumption, net exports and government expenditure.
23100+ 9500+ 6200 + 1300+ (13300-15100)
= 38300
Part b
The official number of the national income of the gross domestic product is known to under
The gross domestic product is known to be calculated as the total value of the final goods
produced within that year(Bandara, Sharma & Chakrabarty, 2019). The GDP is also known
as the total incomes earned within that year. The above two measures will be giving the same
information in a model, however in practice statistical discrepancies and human errors will be
leading to different results.
The official data on the gross domestic product is known to understate the economic activity
as a result of shadow economy like the illegal activities and the value of unpaid work of the
people caring for family and volunteers.

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Part c
The nominal gross domestic product examines the values of the services in the present year
price. This will be representing the monetary values in the market price. The nominal gross
domestic product is the actual monetary unit count of the gross domestic product in that year.
The nominal income is known to measure at the present price where there are no adjustments
made for the effects of inflation (Harding & Laske, 2016). However when it is required to
measure the growth in the economy, it needs to be adjusted for the effects of inflation which
is considered in real terms. On the other hand, the real gross domestic product is known to
measure the volume of the output. The rise in the real output states that the aggregate demand
have rose much faster that the inflation rate.
Part d
The gross domestic per capita is known to be the measure of the economic output of country
which accounts for the number of people. For calculating real gross domestic product per
capita the value of the gross domestic product should be divided by population which makes
it one of the best measures of the country’s standard of living (Bandara, Sharma &
Chakrabarty, 2019). The gross domestic product per capita lets us know how prosperous a
country will be feeling to each of its citizens. The real gross domestic product is known as
the inflation adjusted total economic output of a country which is produced per individual.
The real GDP also shows the welfare of the individual of a country.
Part f
The two alternative measures of the gross domestic product are the Human Development
Index of the United Nations Development Programme and the Index Of Sustainable
Economic Welfare (ISEW).
Section B: ADAS model and economic growth

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Question 1
Figure 1 Impact of migration
When the rate of migration in New Zealand will increase, it will lead to increase in
population which will lead to increase in demand of goods. For this, the aggregate demand
rises from AD1 to AD2. As the population of New Zealand will increase due to rise in
migration, the labour supply will also increase which will lead to over production of goods.
For this, the aggregate supply curve will shift right from AS1 to AS2. The rise in both AD
and will lead to increase in output growth.
Question 2

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Figure 2 A fall in business confidence
When there is a decline in the business confidence in the economy, people will be demanding
less goods in the economy. As the demand decline, the aggregate demand curve shifts left
from AD1 to AD2. When the demand declines in the economy, the output demanded in the
economy also falls from Q1 to Q2 and the price also declines from P1 to P2. This will lead to
fall in equilibrium level.
Figure 3A large increase in households starting to save for their retirement

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As the more number of households will be saving for their retirement, they will presently
demand less amount of goods(Rees, Smith & Hall, 2016). As the demand for goods will
decrease, it will decrease the aggregate demand curve and will shift from AD1 to AD2. This
will be decreasing the output produced in the economy from Q1 to Q2. The output in the
economy decreased which will decrease the price level as well as the equilibrium point in the
economy.
Figure 4 A rise in business confidence
When there be increase in the business confidence people will be demanding more amount of
goods in the economy which will be increasing the aggregate demand. The rise in the
demand will be shifting the aggregate demand curve to the right. Therefore, the aggregate
demand will move to right from AD1 to AD2 which will be increasing the level of output
from Q1 to Q2, that will increase P1 to P2. The rise in the business confidence will be
increasing the aggregate demand in the economy.
Question 3

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Figure 5 Economy close to full employment
The recessionary gap is the gap between the Qe and Q* where Qe is the existing national
income and on the other hand, Q* is the potential gross domestic national income.
Question ii
Figure 6 effect of an increase in transfer payments
When the transfer payments will be increasing the economy, people will be demanding more
goods as they will be having more money in hands for spending. As people will demand

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more goods, the demand curve will shift to right. For this reason the AD curve will shift to
AD1 that will be increasing the output level in the economy.
Section C: LO6- Impact of Government on the macroeconomic
Question 1
As New Zealand will experience faster growth in the economy. The buyers should be
investing more amount of money in the properties. This will in term increase the rate of
migration in the economy. This increase in migration will be leading to problems of
unemployment in the economy after a certain point of time when it will not be controlled.
The rise in level of migration in the economy will be increasing as New Zealand will be
experiencing an economic growth in the country.
Question 2
Figure 7 Monetary policy
The bank of New Zealand is known to control the country with its monetary policy. The
Reserve Bank will be controlling the financial sector in the economy of the country. The
article stated that the monetary policy of New Zealand is known to have expansionary impact

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of the economy of New Zealand since the banks will lend large amount of money in the
people’s hand. As people will have large amount of money with them, they will spend more
and consume more amount. The rise in the aggregate demand will take place when people
will be consuming and spending more (Rees, Smith & Hall, 2016). This will shift the
aggregate demand to the right with the rise in the price level. The new price and the output
level will lead to the new equilibrium output in the economy. As there is a growth in the
output in the economy, this is termed as expansionary monetary policy.
the bank of New Zealand is known to control the country with its monetary policy. The
Reserve Bank will be controlling the financial sector in the economy of the country. The
article stated that the monetary policy of New Zealand is known to have expansionary impact
of the economy of New Zealand since the banks will lend large amount of money in the
people’s hand(Smith, Jennings & Patiar, 2016).. As people will have large amount of money
with them, they will spend more and consume more amount. The rise in the aggregate
demand will take place when people will be consuming and spending more. This will shift
the aggregate demand to the right with the rise in the price level. The new price and the
output level will lead to the new equilibrium output in the economy. As there is a growth in
the output in the economy, this is termed as expansionary monetary policy.
Question 3

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Figure 8 Fiscal policy
The government in this case cuts tax which leads to increase in the income of the people
which is also termed as the fiscal policy. The fiscal policy which is known to be expansionary
in nature will be increasing the spending of the people. As people spends more, they will be
also consuming more amount of good. For this reason, it can be stated that the aggregate
demand can lead to a rise in the level of price. The increase in the demand will therefore
leads to rise in level of price and output. That will also lead to a rise in the output from Q1 to
Q2 and also P1 to P2. The AD curve will also shift right.
Section D: LO7- International trade and global economy
Question 1
OUTPUT PER WORKER PER ANNUM
WOOL FISH
NZ 60 90

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AUSTRALIA 50 30
a) Australia will be producing wool since it has lower opportunity cost in production of
wool.
b) New Zealand will have a comparative advantage for producing fish since it will be
having lower opportunity cost in the production of fish.
c) Since Australia will be exporting wool because it has comparative advantage in
production of wool and New Zealand should be exporting fish since it has the
comparative advantage in producing fish.
d) Openness of China to NZ’s chilled meat industry negatively impacts the impact the
consumer in New Zealand, the people of New Zealand will have less availability of
chilled meat.
Question 2
a) As the distance from New Zealand from the world markets will be having a surplus in
the current account.
b) The property firms of New Zealand have welcomed investment from the companies
which means there will be less inflow of capita which will adversely affect the current
account.
c) The property firms of New Zealand are taking investment from the foreign investors
which will be improving the capital account of the balance of account.
Question 3

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a) The falling dollar will make the exports lose while importer will be gaining.
b) As the NZ dollar will be strong, the education in foreign countries will become cheap
for NZ students.
Question 4
a) The economic recession of USA negatively affects the exports volume of New
Zealand to USA.
b) As the rate of interest will be increasing in the economy, it will lead to an increase
in the price and quantity of dollar traded in the market.
Answer 3

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The expansion of industries in New Zealand will lead to increase in the demand for
NZ dollar. This shifts the demand curve of NZ dollar to increase in price.

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Reference list
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Economy. Economic Record, 92(298), 374-408.
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Smith, M. A., Jennings, D., & Patiar, D. (2016). Quality Tourism Experiences: A qualitative
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