International Comparisons of Economic Growth and Economic Wellbeing

just questions and answer

Faculty of Business, Economics and Law

Professional Masters

ECONOMICS FOR BUSINESS

ECON861 

TRIMESTER 1 2021

ASSIGNMENT 2: MACROECONOMIC ANALYSIS 

Date due:      Sunday, 23 May 2021 (11.45 pm)

Total marks: 50 marks

Weighting:    40% of total grade

1. This assignment has two sections. Section one will test your writing skills and section two will test your quantitative skills.

1. Read the case studies presented and attempt all questions.
2. Wherever indicated, appropriately labelled diagrams or examples should support your answers.
3. Make sure you answer each question in your own words with no evidence of copying or pasting from the internet or published sources. Such copying/pasting constitutes academic dishonesty and is taken very seriously at the university. A Turnitin report may be used as evidence if this is the case.
   1. A Turnitin submission is required for this Assignment.
   2. Late submissions will incur a penalty, see your Study Guide.
   3. All extension requests must be accompanied by appropriate evidence and applied at least 24 hours before the submission deadline.

Submission:

Present your results in a Word document; graphs can be hand-drawn. Handwritten/drawn parts should be scanned and incorporated into the Word document (you can take a photo and add it in). Upload your Word document onto Blackboard as follows: Select “Assignment 2 Submission” tab > Assignment 2 > click on the link > Browse my computer > select the Word document > Submit. You must upload your document before the deadline.

SECTION 1: CASE STUDY ANALYSIS                                                                           (15 marks)

Case study 1: International comparisons of economic growth and economic wellbeing                                                                                                                                      (10 marks)

The following table shows various countries’ economic growth rates and rankings on the Human Development Index (HDI). The HDI was developed in 1990 by the United Nations Development Program. It is now calculated and published annually by the World Bank.

Table 1

*Average of the five years 2010–2014 inclusive

Sources: World Bank. 2011. ‘World Development Indicators 2010’ and ‘Annual GDP growth’. http://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG (table 2); and United Nations Development Programme, 2010. ‘Human Development Index Ratings’. http://hdr.undp.org/en/data 

Note that the HDI is based on three variables covering several facets of wellbeing:

• longevity (life expectancy at birth)
• education attainment (adult literacy rate and combined gross primary, secondary and tertiary enrolment ratio)
• standard of living (GDP per capita). 

Table 2

Yearly data from the World Bank (e.g. percentage of annual GDP growth; see http://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG) are used to calculate the average economic growth for each nation. While average growth is an interesting statistic on its own, it is also instructive to note annual growth figures, since these indicate different recovery paths from the impact of the Global Financial and Economic Crisis (GFEC) on economic activity. 

Question  

What are the three key measures of economic growth and how are they calculated?                                                                                                                                            (3 marks)

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Question 2

What do you notice about the differences in average rates of growth and the different HDI rankings for the countries in Table 1? Can you explain this relationship?                   (3 marks)

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Question 3

Based on your observations and analysis of the figures above, do you think it is sufficient to look only at economic growth rates to compare the economic wellbeing of these countries? Explain your answer.                                                                                                     (2 marks)

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 Question 4

 What measures (other than GDP) would you use to compare economic wellbeing among these countries? Explain your answer.                                                               (2 marks)

Case study 2: Analysing economic data – is there any good news?                           (5 marks)

The following are economic data for New Zealand in 2016 and in 2017.

Source: Reserve Bank of New Zealand. 2021. https://www.stats.govt.nz/topics/economy

 Question 1

Consider the data for 2016 and 2017 shown in the table above. Use your knowledge of the short-run AD-AS model to graph the changes in output and inflation between 2016 and 2017.                                                                                                                                (3 marks)

Question 2

Given the above, what advice would you give the government regarding its fiscal-policy stance to address the economic problems shown in the table and graph? Explain your answer.                                                                                                                                       (2 marks)

SECTION 2: QUANTITATIVE ANALYSIS                                                                      (35 MARKS)

Question 1: Perfect Competition                                                                                      (15 Marks)

Consider the graphs below, which depict a firm in a perfectly competitive market in long run equilibrium. Answer the questions that follow.

a)      What is the market equilibrium price and quantity?                               (2 marks)

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b)      What is the optimal quantity that the firm should produce?                   (1 mark)

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c)      What type of profit will this firm make and how many firms are there in this market?                                                                                           (2 marks)

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d)      Assume there is an increase in market demand of 600 units at each price. Add this to the above diagram and state the new equilibrium price. (To add a new demand curve, click on the above graph and then click on the ‘Insert’ tab. Select ‘Shapes’ and then click on ‘Lines’. Click on where the demand curve will be according to the new quantity)                                                                                      (2 marks)

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e)      What is the new optimal quantity that the firm should produce?           (1 mark)

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f)       What is the firm’s new profit?                                                                  (1 mark)

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g)      Free entry will allow new firms to enter the market, returning the market to a long run equilibrium. Add this to the above diagram. (To add a new supply curve, click on the above graph and then click on the ‘Insert’ tab. Select ‘Shapes’ and then click on ‘Lines’. Click on where the supply curve will be according to your knowledge on long run equilibrium)                                                                     (1 mark)

h)      What is the final market equilibrium price and quantity?                        (2 marks)

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i)        What is the optimal quantity that the firm should produce and what profit will they now make?                                                                                          (2 marks)

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j)        How many firms are now in the market?                                                 (1 mark)

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Question 2: Monopoly and Price discrimination                                                      (12 Marks)

“Coast to Coast” is the only company that sells shuttle tickets to guided tours of the Kumeu wineries, west of Auckland. The graph below shows the Demand (D) and Marginal Cost (MC) curves for their bus tour tickets.

(a)    Draw the Marginal Revenue (MR) curve in the graph above. (To do this in WORD, click on the above graph and then click on the ‘Insert’ tab. Select ‘Shapes’ and then click on ‘Lines’. Click on where the MR will insect Price and then click on where MR will intersect Quantity)                                                                                                            (2 marks)

(b)   What is the monopoly market outcome?                                                      (3 marks)

Monopoly price =      $___________
Monopoly quantity =   ___________
Monopoly profit =      $___________

(c)    In addition to the “regular” monopoly price you calculated above, the monopoly now decides to practice price discrimination, by introducing two new prices: a “business” price at $50 and a “student” price at $30.

(These different prices will be sold through different sales channels: the “regular” tickets are sold at the ticket booth downtown at Britomart, for casual tourists; the “business” tickets are booked through corporate travel agents; and the “student” tickets are sold at University student centres. We assume that the corporate clients have the highest willingness-to-pay, followed by casual tourists, followed by students.)        

Number of “business” tickets sold =               __________
Profit from “business” tickets =                     $__________

Number of “regular” tickets sold =                 __________
Profit from “regular” tickets =                        $__________

Number of “student” tickets sold =                __________
Profit from “student” tickets =                       $__________

Total Profit from all ticket sales =                   $__________

Question 3: GDP and Inflation                                                                                          (8 Marks)

Consider the following production data for a small economy and answer the below questions. (Note, 2012 is the base year).

(a)     Calculate real GDP for the years 2013 and 2014.                                         (2 marks)

(b)   Calculate the rate of real annual economic growth for the years 2013 and 2014.                                    (2 marks)

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(c)    Calculate the GDP deflator for the years 2013 and 2014.                             (2 marks)

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(d)   Calculate the annual inflation rate for the years 2013 and 2014.                (2 marks)

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