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:...

I wrote notes about my previous Macroeconomics assignment for the it is in the file and I added another new section that I want you to answer it by tomorrow 10:00 am. Thanks


Week 9 Tutorial Activity ECON1246 / ECON1273Macroeconomics 1 Assessment 2 Part 2 SECTION A14 marks The economy of Euphoria has the following economic data. Please write about the Two years: 1- 2015 to2016. 2- 2016 - 2017 Year 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. Q1a. 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 = (505-480)/480*100 = 5.21% b. 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 = (107.92-101.04)/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. (1 + 1 + 2 = 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) Increase 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 Currency. That Is)’ a. Identify and briefly 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 currency “sovereign bolivar”. In the new currency 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 currencies 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. b. 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. Equilibrium level of income is determined at a point where aggregate demand intersect the aggregate supply curve. In the graph above equilibrium point is e and equilibrium 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 equilibrium 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. Equilibrium level of income is determined at a point where aggregate demand intersect the aggregate supply curve. In the graph above equilibrium point is e and equilibrium 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 equilibrium 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 B6 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