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BUS103 Introduction to Macroeconomics

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Problem-Solving Questions that require written answers

  1. General information
    1. This assignment is worth 25 per cent of total assessment and is to be submitted by 5.00pm, Thursday 12 January 2017.
    • There are 3 questions and each question will be marked out of 20 marks, consisting total of 60 marks. Then the marks will be converted to a total of 25 mark scale for 25 per cent of your total course assessment. The m...

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Question Preview:

Topic

Problem-Solving Questions that require written answers

  1. General information
    1. This assignment is worth 25 per cent of total assessment and is to be submitted by 5.00pm, Thursday 12 January 2017.
    • There are 3 questions and each question will be marked out of 20 marks, consisting total of 60 marks. Then the marks will be converted to a total of 25 mark scale for 25 per cent of your total course assessment. The marks to be uploaded in Moodle will be out of 25 marks.
    • A hard copy of the assignment must be submitted to KOI Librarian in Kent street campus by 5.00pm, Thursday 12 January 2017. You must keep the copy of receipt after the submission for your own record.
    • Late submission will attract loss of 5 marks out of 25 marks (20 per cent), and the assignment submitted after 5.00pm Friday  13 January  2076 will not be accepted and marked zero
    1. This assignment is an individual assignment. Each student is expected to try all three questions and submit the assignment. Name and ID number of the student must be clearly printed on the Assignment Cover Sheet.
    2. You must follow an appropriate format explained below. Not following appropriate format will cause a loss of some marks.
  • All written answers must be clearly typed and printed. Hand-written answers will NOT be accepted.
  • All assignment questions and sub-questions must be typed in order at the heading.
  • Separate each main question by different page. For example, if Question 1 (a) (b) (c) and (d) are answered on pages 1-2, then start Question 2 on page 3, etc. If not following, it will attract a loss of some marks.
  • The answers must be written clearly and concisely with the main points only, and avoid irrelevant points.
  • You must analyse, explain and show how and why you draw your answers. Providing just answers without explanation will not receive full marks.
  • You must also include appropriate and relevant diagrams, charts and tables together in your explanation. Draw them using Microsoft Power Point/Word/Excel, NOT hand-drawn.   
    1. Copying the assignment contents from other(s) is a serious violation of copy right. It will be penalized and attract a VERY heavy loss of marks – “Fail”.
  • Please remember that it is not difficult to identify the contents that are copied from other(s). Write the answers in your own English words.
  • Please make sure that you do not show your assignment to other(s). Both who shows the assignment and who copies the assignment will lose their marks heavily and fail the assessment.  
    1. Make sure you read and check the assignment before submission, once completed.  
  1. Assignment Questions

Question 1 – 20 marks

Measuring GDP and Economic Growth

The table lists some macroeconomic data for a country in 2015.

  1. Calculate the country’s GDP in 2015. Then explain the approach (expenditure or income) that you used to calculate GDP.    (4 marks)

 

 

 

 

An economy produces only three commodities – fish, crabs and coconuts. The base year is 2014, and the table gives the quantities produced and the prices.

  1. Calculate chain volume measure of real GDP in 2014 and 2015 expressed in base-year prices. Then, calculate the real GDP growth rate between 2014 and 2015.         (6 marks)

 

 

 

 

 

 

 

 

Jobs and Inflation

Australian Bureau of Statistics reported the following data for 2015:

Labour force participation rate: 69.6 per cent

Working-age population (in thousands people): 18,429,726

Employment-to-population ratio: 65.2

  1. Calculate the labour force.  (2 marks)
  1. Calculate the employment.  (2 marks)

In New South Wales in October 2015, the labour force was 3,803,200 and 200,500 people were unemployed. In November 2015, the labour force decreased by 300 and the number employed increased by 2,900.

  1. Calculate the unemployment rate in November 2015.  (2 marks)

CPI and Inflation

The Lucky Country reported the following CPI data:

June 2010  201.9

June 2011  207.2

June 2012  217.4

(f). Calculate the inflation rates for the years ended June 2011 and June 2012. How did the inflation rate change in 2012? (2 marks)

(g). Why might these CPI numbers be biased? (2 marks)

Question 2 – 20 marks

Quantity Expansion (QE) of Money in the European Union (EU)  

On March 9 2015, the European Union (EU) commenced quantity expansion of money, Euro (€). The European Central Bank (ECB) has increased the quantity of money by 60 billion euro every month in the open market in an attempt to support the economy of EU countries. The large increase in the quantity of money is expected to have significant impacts on a range of economic sectors in the EU and global financial markets.   

  1. Analyse how the quantity expansion of euro money is likely to affect money supply, interest rate, investment and consumption, and economic growth in the EU.  Draw relevant graph(s) for your analysis.  (5 marks)
  1. Discuss how the quantity expansion of euro money would change the value of euro, exchange rate (depreciation or appreciation) against other currencies, and exports and imports in the EU.  How would this contribute to EU’s current account balance and would this improve the competitiveness of the EU economy in the global market?  (5 marks)

The United States is likely to Raise Interest Rate soon

The U.S. Federal Reserve chairman, Dr Janet Yellen, has signalled that the United States is likely to raise its interest rate as US economic indicators has improved. On the other side of the world, however, the interest rates in many other countries including the EU and Australia are on hold at their lowest level ever.

  1. Explain, in the short run, how and why an increase in US interest rate is likely to change the flow of funds between the United States and Australia.  (2 marks)
  1. Using a graph, explain how an increase in US interest rate is likely to affect loanable funds supply and interest rate in Australia. Also, analyse how the change in loanable funds supply and home loan interest rate are likely to influence housing demand, house prices, and household debt burden in Australia.   (5 marks)
  1. Discuss how and why an increase in US interest rate is likely to affect the value of Australian dollar and exchange rate (depreciation or appreciation) against the US dollar. Also, discuss how the change in exchange rate is expected to influence Australia’s exports, imports and the current account balance (improve or worsen).  (3 marks)

Question 3 – 20 marks

Exchange Rate and Balance of Payments

In October 2012, the exchange rate was 82 Japanese yen per US dollar.  As a result of Abenomics in Japan since late 2012 and economic recovery in the US, the exchange rate rose to 114 Japanese yen per US dollar in March 2016.

  1. Draw a graph and explain what would have happened to the quantity of US dollar supplied and the US exchange rate?  What would have happened to the interest rate in the United States? Would people now plan to buy or sell US dollar in the foreign exchange market?   (4 marks)
  1. What would have happened to the quantity of Japanese yen supplied?  Would people now plan to buy or sell Japanese yen in the foreign exchange market?   (2 marks)

In July 2015, Australian dollar is trading at US$0.75 per Australian dollar and the interest rate in Australia is currently 2 per cent a year. It is forecast that the US will increase its interest rate some time later this year.   

  1. If the interest rate in the US increases to 3 per cent a year, how is it likely to affect the flow of funds between Australia and the United States and the exchange rate of US dollar against Australian dollar (depreciation or appreciation)?  What is likely to happen to the current account balance of the United States?  (6 marks)

Balance of Payments

The table gives some information about the US international transactions in a year.

  1. Explain and calculate the current account balance.  (2 marks)
  1. Explain and calculate the capital account balance.  (2 marks)
  1. Did the US official reserves increase or decrease? Explain.  (2 marks)
  1. Was the US a net borrower or a net lender in this year? Explain your answer.  (2 marks)

 

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Solution preview

Basically there are two approaches for calculation of GDP of any country, Income approach or the Expenditure approaches/Spending approach, which approach for calculation of GDP shall be adopted will be depend on the information so available with users, Income approach for GDP Calculation:  Another form to identify, income is the spending capacity of someone. That is wages paid to labour, an investment by corporation, income generated in form of rent, and other similar factors. This all factors are sum up in order to calculate GDP of nation, however one point is important to note while Calculate GDP Based on income approach that is an indirect mode for payment to factors of production, such as tax on sale of goods or services, or tax on property, depreciation, which is popularly knowns as reserve for assets   

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