Bueco5903 - business economics - explain the impact on the

Question

Question 1:

Important Note: [Parts (a) to (g), V2 mark each; parts (h) and (i), 1 mark each; parts (j), (k) and (L)

Suppose the following are national accounts data for a given year for a fictitious country:

Measure I 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	C	3115
Net property and other income paid overseas	NIPO	34
Returns to labour	WageS	2651
Finn profits	Profits	1687
Other factor rentals	Rents	482

(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 respectively: by how much will GDP cMnge and what will be its new value?

Question 2:

(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?

(b) Why is frictional unemployment inevitable in an economy?

(c) Is structural unemployment something macroeconomic policymakers should be concerned about? How does it differ from cyclical unemployment?

Question 3:

(a) Illustrate and explain with diagrams the difference between demand-pull and cost-push inflation;

(b) Provide (describe) two (2) causes of each type of inflation

Question 4:

(a) Explain the difference between the Keynesian and monetarist views on how an increase in the money supply causes inflation.
(b) Why is the shape of the aggregate supply curve important to the Keynesian-monetarist controversy?

Question 5:

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) A significant destruction in an economy's capital stock because of an earthquake;
(b) An increase in personal income tax;
(c) An increase in exports;
(d) An improvement 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.

(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.

(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?

Question 7:
Which of the following would cause a growth in the money supply? Answer yes, no, or possibly. If your answer is 'possibly' then explain the circumstances under which the answer would be 'yes'.

(a) The selling of government securities to banks;;

(b) An increase 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:

(i) 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; 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.