Week 9 Tutorial Activity
ECON1246 / ECON1273Macroeconomics 1
Assessment 2 Part 2
SECTION A 14 marks
The economy of Euphoria has the following economic data.
Please write about the Two years:
XXXXXXXXXXto2016.
XXXXXXXXXX
Yea
2015
2016
2017
Nominal Gross Domestic Product ($ billions)
470
485
545
Real Gross Domestic Product ($ billions)
470
480
505
% change in real Consumption spending
3.00
1.25
1.00
% change in real Investment spending
2.00
-10.00
5.00
Net exports ($ billions)
- 23,000
- 52,000
- 5,000
Unemployment rate (%)
5.3
5.8
6
Natural rate of unemployment
4.8
4.8
5.4
Index of production costs (2015 = 100)
100
105
107
Productivity index (2015 = 100)
100
101
103
Q2)- talk about the types of unemployment that Cyclical doesn’t included
Examine the data relating to the economy of Euphoria above and answer the following questions.
Q1 a. Calculate the real growth rate for 2016 and 2017 to two decimal places.
Real GDP in 2016 = 480
Real GDP in 2017 = 505
Growth in Real GDP is = XXXXXXXXXX)/480*100 = 5.21%
. Calculate the inflation rate for 2016 and 2017 to two decimal places.
To find the inflation we have to find GDP deflator. This can be calculated by dividing nominal GDP/ Real GDP*100
GDP deflator in 2016 = (485/480)*100 = 101.04
GDP deflator in 2017 = (545/505)*100 = 107.92
Inflation rate for 2016 and 2017 = XXXXXXXXXX)/101.04*100 = 6.81%
c. What phase of the business cycle was the economy in 2016 and 2017? Briefly give two reasons for your answer.
XXXXXXXXXX = 4 marks)
Economy in the expansion stage of business cycle. Real GDP grew by 5.21% and there increase in inflation at rate of 6.81%. Increase in GDP and increase in inflation are two signs of expansion stage of business cycle.
Q2. What was the likely cause of the change in the unemployment rate in 2017? What type of unemployment is likely to exist in Euphoria in 2017? Explain your answer.
(3 marks)
It is the increase in frictional and structural unemployment that is the causes of change in unemployment rate in 2017.
Frictional and structural unemployment is likely to exist in Euphoria. The economy is experiencing expansion stage of business cycle. People will try to look for better job opportunities during the expansion stage of the business cycle. As the demand for investment is increasing there will be structural changes in the economy. This will result in some job loses due to inadequacy of skills. Structural changes necessitates changes in labor skills. Workers need some time to acquire new skills. Till the time they acquire new skill they will be unemployed.
Q3. Identify and explain the likely cause of inflation in 2017?
(4 marks)
XXXXXXXXXXIncrease in demand is the likely cause of inflation 2017. There is increase in real investment from -10% growth in 2016 to 5% growth in 2017. Increase in investment causes aggregate demand to increase. Consumption demand is stable. This result in increase in inflation.
Index of production costs (2015 = 100)
100
105
107
Productivity index (2015 = 100)
100
101
103
Write about this table why it’s
Q4. Read the article ‘Venezuela Cuts to Fight Inflation (Zeros from Its Cu
ency. That Is)’
a. Identify and
iefly explain the two causes of hyperinflation in Venezuela.
Inflation rate as on 16 August 2018 was 32,714%. Inflation growth is five digits and this is called hyper inflation. Country has minted new sovereign cu
ency “sovereign bolivar”. In the new cu
ency they remove zeros from its face value. There are political and economic reason behind hyperinflation in Venezuela. Shortage of food, electricity, medicine and riots are political reason behind hyperinflation. Country stated printing new cu
encies that caused inflation. From the economic front it is the increase in money supply that lead to hyper inflation. Increase in money supply causes increase in aggregate demand. Increase in aggregate demand causes increase in inflation.
This is the second reason that I found from the article you can talk about and explain it by using the diagram.
(From the article) Faced with this shortage, the government turns to the Central Bank to order more money printed. While that may pay the government’s bills in the short term, it comes at the expense of everyone who owns bolívars, as the surplus of printed cash makes existing money increasingly worthless.
. Illustrate these using the AD-AS diagram clearly showing the increase in the inflation rate.
(3 marks)
Aggregate demand is the some total of private consumption demand, investment demand, government expenditure demand and net export demand. Aggregate supply curve is the some total of supply in the economy. Equili
ium level of income is determined at a point where aggregate demand intersect the aggregate supply curve. In the graph above equili
ium point is e and equili
ium level of income is Y and general price level is P. Due to decrease in annual permanent migration intake consumption demand fall. As private consumption demand one of the components aggregate demand the aggregate demand curve shift left.
As result of this shift new equili
ium point is E0. Shift of aggregate demand curve to the left results in fall in general price level and fall in national income. New level of income is Y0.
Aggregate demand is the some total of private consumption demand, investment demand, government expenditure demand and net export demand. Aggregate supply curve is the some total of supply in the economy. Equili
ium level of income is determined at a point where aggregate demand intersect the aggregate supply curve. In the graph above equili
ium point is e and
equili
ium level of income is Y and general price level is P. Due to decrease in annual permanent migration intake consumption demand fall. As private consumption demand one of the components aggregate demand the aggregate demand curve shift left. As result of this shift new equili
ium point is E0. Shift of aggregate demand curve to the left results in fall in general price level and fall in national income. New level of income is Y0.
SECTION B 6 marks
Q1
Graph the demand for and supply of Australian dollars for US dollars. Label each axis.
From Australia's perspective, show graphically and explain the effect on the Australian dollar of the following.
Australia’s major trading partners (China, Japan, USA and East Asia) experience lower RGDP and income growth resulting in a decrease in the price of Australian exported commodities (e.g. coal, iron-ore).
As a result there is increased speculation of the AUD (Australian dollar) based on speculators expectations of its future value.
(4 marks)
Illustrate – exchange rate market
Explanation:
____________________________________________________________ Shifts in Demand and Supply _____________________________________________________
_________________________________________________________
__________________________________________________________________________________________________________________
_________________________________________________________
Q2. Explain the impact that the change in the exchange ratein (a) above will have on Australia’s net exports, real GDP and the price level. (2 marks)
Explanation:
Net exports.
____Just say if it’s increase or decrease ____________________________________________________________________________________________________________________
____________________________________________________________
RGDP and the price level.
___________ Just say if it’s increase or decrease _____________________________________________________________________________________________________________
____________________________________________________________
1
6
Assessment 2 Part 2Semester 2 2018