Task 6: GDP, economic growth, unemployment and inflation
Question 1. Mr Lee is a previously self-employed man with an income of $3500. He decided to become an employee of a manufacturing company with a salary of $4000. In closing down his business, two of his employees were dismissed, each previously receiving a salary of $1000. Each of his employees will now receive unemployment benefits worth $500 per annum. The change in National income as a result was________. Explain (2 marks) Approx. number of words: 100.

The following document, Task 6_Question2-3-4 (XLSX 10KB)Preview the document, sets out the CPI index for each quarter from March 2009 to March 2018. Use this information to answer Questions 2, 3 and 4 below.

Question 2. Calculate the year-end (or annual) inflation rate for the March 2018 quarter. Show all workings including the formula used. (1 marks) Maximum number of words: 30.

Question 3. Using excel calculate the year-end inflation rate for each quarter for the period March 2010 to March 2018. Paste your spreadsheet with the answers into the assignment. (2 marks) Spreadsheet only.

Question 4. Using Excel, prepare a graph of the year-end inflation rate for each quarter for the period March 2010 to March 2018. Paste your graph into the assignment. Make sure you carefully label your graph including an appropriate title, axis labels and legend. (1 mark) Graph only.

Decide whether each of the following transactions in questions 5 and 6 is included in GDP. Explain. Note: If the transaction is included, determine which component it effects.

Question 5. You buy a used copy of the unit textbook from a friend. (1 mark) Maximum number of words: 50.

Question 6. The publisher buys a new printing machine for printing textbooks. (1 mark) Maximum number of words: 50.

Read the following excerpt and answer Question 7.

‘Yasi tipped to send banana price soaring’ (Greenblat 2011).

CONSUMERS may soon be paying triple for their bananas following reports the majority of Australia’s crop of the fruit has been wiped out by cyclone Yasi.

Initial assessments in Queensland indicate the massive storm may have wiped out as much 90 per cent of the banana crop and that the industry might take 12 to 18 months to get back up to full production.

As a result, economists believe consumers could be in store for another national shortage and resulting rocketing prices in line with the impact when the state’s crop was flattened by cyclone Larry almost five years ago.

“The figures the Australian Bureau of Statistics used back then showed in the June quarter of 2006 there was a 250 per cent rise in the price of bananas due to Cyclone Larry, and what they also said at the time was that [higher] fruit prices overall contributed 0.6 percentage points to inflation – and bananas were most of that,” Mr Blythe said.

Question 7.Explain, using economic concepts, how the impact of Cyclone Larry would cause an increase in CPI. Would you expect that impact would lead to an overestimation or underestimation of CPI and inflation. (4 marks). Note this question tests both micro and macro theory. Use a graph for the micro economic elements of the answer. (1 mark) Maximum number of words: 350.

Task 7: Business cycle and aggregate demand & supply
Question 1. Starting from long-run equilibrium, use the basic (static) aggregate demand and aggregate supply diagram to show what happens in both the short run and the long run when there is a reduction in consumer confidence. Explain your diagram. (2 marks) Maximum number of words: 150.

Explain how each of the following events in questions 2 and 3 would affect the aggregate demand curve. No graph required.

Question 2. Domestic prices increase, which raises interest rates. (1 mark) Maximum number of words: 50.

Question 3. Slower income growth in other countries. (1 mark) Maximum number of words: 50.

Question 4. Suppose you are an advisor to the federal government. You are asked to look at macroeconomic data to evaluate whether the economy has entered an economic contraction this year. Which data do you look at? How does the economy behave at the onset of an economic contraction? Explain your answer. (2 marks) Maximum number of words: 250.

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