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BUEC05903 - Buisness Economics

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BUSINESS ECONOMICS (BUECO5903) ASSIGNMENT PART B - MACROECONOMICS SEMESTER 1, 2018 COURSE COORDINATOR — PAUL MCPHEE CHECKED BY — DAVID SPIERS Question 1: Important Note: [Parts (a) to (g), % mark each; parts (h) and (i), 1 mark each; parts (j), (k) and (L), 1.5 marks each) Suppose the following are national accounts data for a given year for a fictitious country: Measure / Variable Amount ‘ (Billions of Dollars) Consumption of fixed capital Depreciation | 320 Gross private fixed capital formation I 785 Government consumption expenditures Part G 585 Government investment...

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BUSINESS ECONOMICS (BUECO5903) ASSIGNMENT PART B - MACROECONOMICS SEMESTER 1, 2018 COURSE COORDINATOR — PAUL MCPHEE CHECKED BY — DAVID SPIERS Question 1: Important Note: [Parts (a) to (g), % mark each; parts (h) and (i), 1 mark each; parts (j), (k) and (L), 1.5 marks each) Suppose the following are national accounts data for a given year for a fictitious country: Measure / Variable Amount ‘ (Billions of Dollars) Consumption of fixed capital Depreciation | 320 Gross private fixed capital formation I 785 Government consumption expenditures Part G 585 Government investment expenditures Part G 210° Imports of goods and services M 565 Exports of goods and services x 690 Household consumption expenditure Cc 3115 Net property and other income paid overseas NIPO 34 Returns to labour Wages 2651 Firm profits Profits 1687 Other factor rentals Rents 482 inept es was oe mae ae (a) Calculate GDP using the income method; (b) Calculate GDP using the expenditure method at market prices; (c) Calculate Gross National Expenditure (GNE); (d) Calculate Net Domestic Product (NDP); (e) Why might NDP be a better measure of economic performance than GDP? , (f) Calculate Gross National Product (GNP); (g) Calculate Net National Product (NNP); (h) Calculate Current Account Balance (CAB); (i) Calculate Gross National Savings (GNS) (j) Suppose that tax revenues are $17 billion for the fiscal year, then what is the value of national savings? (k) If MPCd remains at 0.63 and GDP changes to $4873 billion; then what will the new level of domestic consumption (i.e. Cdf) be? (1) If exports then increase by $4 billion, private sector investment decreases by $3 billion; and government -, consumption and investment decrease and increase by $3 billion and $4 billion respestively: by how much will GDP «ES ‘change and what will be its new value? macnor sims PLOTS SOS OTT ELIOT TE PIE ST SIT nT SITET TL on es (a) Describe the relevant criteria that the Australian Bureau of Statistics use to determine whether a person is ‘unemployed’ and what problems do you see using this measure? (4 marks) (b) Why is frictional unemployment inevitable in an economy? (2 marks) (c) Is structural unemployment something macroeconomic policymakers should be concerned about? How does it differ from cyclical unemployment? (4 marks) Question 3: (10 marks total - 2.5 marks each part) (a) Illustrate and explain with diagrams the difference between demand-pull and cost-push inflation; (2.5 marks for the diagram, and 2.5 marks for the explanation) (b) Provide (describe) two (2) causes of each type of inflation (2.5 marks for 2 demand-pull causes, and 2.5 marks for 2 cost-push causes) Question 4: (5 marks each) (c) Explain the difference between the Keynesian and monetarist views on how an increase in the money supply causes inflation. (d) Whyis the shape of the aggregate supply curve important to the Keynesian-monetarist controversy? Question 5: (2.5 marks each part) Using the aggregate demand — aggregate supply (AD-AS) diagram, show how the four separate and independent economic events would affect economic activity and the price level. (Note: use a separate AD- AS diagram for each event) (a) | Asignificant destruction in an economy’s capital stock because of an earthquake; (b) Anincrease in personal income tax; (c) — Anincrease in exports; (d) |Animprovement in the marketing and selling skills of firm managers; Question 6: (a) Consider this statement: ‘Banks do not create money because this is the Central Bank’s (Reserve Bank of Australia) responsibility’. Do you agree or disagree? Explain. (4 marks) (b) Suppose that you deposit your pay cheque drawn on another bank into your own bank account. Explain the impact on the overall money supply that this will have in the economy. (2 marks) (c) Suppoes that you remove $1000 from under your mattress and deposit it in the Westpack bank. If the required reserve ratio is 10 per cent, what is the maximum amount the bank can lend from this deposit? (4 marks) Question 7: Which of the following would cause a growth in the money supply? Answer yes, no, or possibly. |f your answer is ‘possibly’ then explain the circumstances under which the answer would be ‘yes’. (a.5 marks each) (a) The selling of government securities to banks;,” (b) Anincrease in government expenditure, financed by borrowing from the banking sector; (c) The purchase of government securities by the Central Bank from the banking sector; (d) It is agreed by the Treasurer and the Governor of the Central Bank to reduce the target rate of inflation. Question 8? The following are the various elements within a nation’s balance of payments account: (e) Imports of goods (-—) (ii) Exports of goods (+) (iii) Imports of services (—) (iv) Exports of services (+) (v) Other income outflows (-) (vi) Other income inflows (+) (vii) Capital transfers sent overseas from the nation (-) (viii) Capital transfers to the nation from overseas (+) (ix) The nation’s investments overseas (—) (x) Investment in the nation from overseas (+) (xi) Short-term financial outflows (—) (xii) Short-term financial inflows (+) (xiii) Adding to reserves (-) (xiv) Drawing on reserves (+) Into which of the above categories would you put the following? (total 10 marks — 1 mark each) (a) DVD recorders imported into the nation from Japan; (b) Insurance cover purchased in the nation by overseas residents; (c) The nation gives overseas aid to a developing country; (d) US car company sets up a factory in the nation; (e) Some of the nation’s residents take a holiday in Bali; (f) Interest earned by the nation’s residents on overseas assets; (g) Running down the stock of foreign exchange in the Central Bank of the nation; (h) Migrants to the nation transferring property to the nation; (i) New deposits made in banks in the nation by overseas residents; (j) The nation’s palm oil is sold in the United Kingdom.

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Question 1

a)Calculating GDP by using the income method: 
GDP= Income from people in jobs and in self-employment (e.g. wages and salaries) + Profits + Rents (McEachem, 2016).
= 2651+1687+482
= $4820 Billion
b) Calculating GDP by using the expenditure method
GDP = C + I + G + (X-M) where
C: Household spending
I: Capital Investment spending
G: Government spending
X: Exports of Goods and Services
M: Imports of Goods and Services
= 3115+785+ (585+210) + (690-565)
= $4820 Billion
 

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