Macroeconomics Assignment Solution - BUECO5903, Semester 1, 2019

This macroeconomics assignment solution provides a detailed analysis of various macroeconomic concepts. It begins with calculating Gross Domestic Product (GDP) using both income and expenditure approaches, along with Gross National Expenditure (GNE), Net Domestic Product (NDP), Gross National Product (GNP), and other related calculations. The solution explores the differences between these measures and their implications for economic performance. The assignment further delves into identifying intermediate and final goods, and the importance of including them in GDP calculations. It also examines demand-pull and cost-push inflation, including their causes and diagrams. The solution addresses the impact of government and central bank actions on the money supply, such as bond sales, interest rate changes, and government expenditure. Finally, it covers the balance of payments, identifying various transactions as either imports, exports, or capital transfers. References from academic sources support the analysis.

Running head: Macroeconomics
Macroeconomics
Name of the Student
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Table of Contents
Answer 1..........................................................................................................................................2
Answer 2..........................................................................................................................................4
Answer 3..........................................................................................................................................5
Answer 7..........................................................................................................................................6
Answer 8..........................................................................................................................................7
References........................................................................................................................................9

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Answer 1
(a) Calculating Gross Domestic Product (GDP) using income approach
GDP=Total National Income+Sales Tax+ Depreciation+ Net Factor Income ¿ Foreign
GDP= ( 1687+2651 ) +0+(−482)+34
GDP=$ 3890 billion
(b) Calculating GDP using expenditure approach
GDP=Consumption+ Investment +Government Expenditure +Net Exports
GDP= ( 320+3115 ) +785+ ( 585+210 ) + ( 690−565 )
GDP=$ 5140 billion
(c) Calculating Gross National Expenditure (GNE)
GNE=Household Consumption Expenditure +Government Consumption Expenditure +Gross Private ¿Capital For
GNE=3115+210+785
GNE=$ 4110 billion
(d) Calculating Net Domestic Product (NDP)
NDP=GDP−Depreciation
NDP=5140−482
NDP=GDP−Depreciation
NDP=$ 4658 billion

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(e) NDP is a better measure of economic performance than GDO because it takes depreciation of
capital into account.
(f) Calculating Gross National Product (GNP)
GNP=GDP+ Net Factor Income ¿ Foreign
GNP=5140+34
GNP=$ 5174 billion
(g) Calculating Net National Product (NNP)
NNP=GNP−Depreciation
NNP=5174−482
NNP=$ 4692 billion
(h) Calculating CAB
CAB=Net Exports+ Net Income ¿ foreign+Government Transfers
CAB=125+34−210
CAB=−$ 51 billion
(i) Calculating Gross National Savings (GNS)
GNS=Consumption of ¿ capital +Gross private ¿ capital formation
GNS=320+785
GNS=$ 1105 billion

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(j) If tax revenue for the fiscal year is $17 billion then the value of national savings would be
$(1105+17) billion or $1122 billion.
(k) When the GDI changes to $4873 and the MCDd is 0.63, then the domestic consumption
would be $(0.63×4873) billion or $3069.99 billion.
(l) Change in GDP will be given by
GDP=5140+(4−3−3+ 4)
GDP=$ 5142 billion
Therefore, change in GDP is $2 billion and it s new value is $5142 billion.
Answer 2
(a)
(i) A wind screen is an intermediate good because it is used to manufacture car which is a final
product and it is not individually used (Kaplow, 2015).
(ii) New bulldozer is final good because it can be used as a complete product and it does not act
as parts or ingredients of any other product.
(iii) Household cleaning service is a final good because it is directly used to clean the house and
it does not add anything to another product which is further sold as a product.
(iv) Coking coal is an intermediate good because it helps to cook food which is the ultimate good
that is consumed finally.
(b) Gross Domestic Product can be defined as the total produce of a country within its
geographical area in a given period of time. Thus in this case $800 billion worth of product is

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produced within the country and $750 is the sales value of goods and services and hence $800
billion is the GDP of the country.
(c) A new truck is a final good even though it us used to produce other goods because it add
values to other goods but not used in that good and further sold as part of that good (Sinha et al.,
2018). It is solely used by the transport company and thus it is final good. Every final goods and
services should be included in the GDP and therefore the truck should be included in the GDP.
Answer 3
(a)
Figure 7: Demand pull inflation
Source: (Created by the Author)

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Figure 8: Cost push inflation
Source: (Created by the Author)
From the above two diagram it can be seen that demand pull inflation is the inflation that
occurs due to rise in demand in an economy which is why the AD curve in figure 7 has shifted to
right and causes price to rise (Schwarzer, 2018). On the other and cost push inflation is the
inflation that occurs due to fall in supply of goods in an economy and thus AS curve shifted to
left and causes price to rise (Ali & Sassi, 2016).
(b) Two causes of demand pull inflation are (i) Sudden increase in the money supply and (ii)
Increase in government spending in military during time of war (Nyoni, 2018). Two causes of
cost push inflation are (i) Increase in price of factors of production and (ii) Natural disaster or
calamities that destroys products and means of production.
Answer 7
(a) No selling of government bonds securities to banks would not increase the money supply
because banks has to pay the government for the securities and thus money supply would
decrease.
(b) Yes a fall interest rate would increase the money supply because investors will lend more
money from bank and thus money supply will increase.
(c) Possibly the increase in government expenditure would increase the money supply in the
economy because government expenditure increases cash inflow in an economy, however due to
borrowing from bank it might decrease the liquidity in the economy(Hung & Thompson, 2016).

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(d) Yes, the purchase of government securities by the Central Bank would increase the money
supply and thus cash inflow occurs in the economy via banks.
(e) No, the reduction in target rate of inflation will not increase the money supply in the
economy rather it would reduce the liquidity of the economy as lower target rate of inflation
means the government would take more stringent policies to reduce inflation rate.
Answer 8
(a) DVD recorders – imported goods.
(b) Insurance cover purchased in the nation by overseas residents – investment in the nation from
overseas.
(c) The nation gives overseas aid to a developing country – capital transfer sent overseas from
the nation.
(d) A US car company sets up a factory in the nation - investment in the nation from overseas.
(e) Some of the nation’s residents take a holiday in Bali – import of services.
(f) Interest earned by the nation’s residents on overseas assets – other income inflows.
(g) Running down the stock of foreign exchange in the Central Bank of the nation – adding to
reserves.
(h) Migrants to the nation transferring property to the nation – other income inflows.
(i) New deposits made in banks in the nation by overseas residents – short-term financial inflow.
(j) The nation’s palm oil is sold in the United Kingdom – export of goods.

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References
Ali, M. S. B., & Sassi, S. (2016). The corruption-inflation nexus: evidence from developed and
developing countries. The BE Journal of Macroeconomics, 16(1), 125-144.
Hung, H. F., & Thompson, D. (2016). Money supply, class power, and inflation: Monetarism
reassessed. American Sociological Review, 81(3), 447-466.
Kaplow, L. (2015). Market definition, market power. International Journal of Industrial
Organization, 43, 148-161.
Nyoni, T. (2018). Modeling and Forecasting Inflation in Zimbabwe: a Generalized
Autoregressive Conditionally Heteroskedastic (GARCH) approach.
Schwarzer, J. A. (2018). Retrospectives: Cost-Push and Demand-Pull Inflation: Milton Friedman
and the" Cruel Dilemma". Journal of Economic Perspectives, 32(1), 195-210.
Sinha, P., Ringold, P., Van Houtven, G., & Krupnick, A. (2018). Using a final ecosystem goods
and services approach to support policy analysis. Ecosphere, 9(9), e02382.