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# PACC6007 Economics assignment

## Microeconomics Assignment

INSTRUCTIONS

For each of the 4 questions below, write a brief explanation in answer to each part of each question. Marks awarded will depend on the quality of the reasoning exhibited, the ability to express the argument in a concise manner (including the use of diagrams and mathematics) and the organisation of your answer.

Where appropriate draw diagrams to illustrate your answer (these can be hand drawn).

This assignment should be answered in no more than 1,500 words. On average, no more than about a page-and-a-half of should be devoted to any one question.

This assignment is graded out of a total of 20 marks and accounts for 20% of the marks used to assess your final grade.

QUESTION 1 (5 marks)

Suppose the following table shows some national accounting data for a given year for some particular country.

Table 1 national accounting data

 Amount (billions of dollars) Quantity demanded Consumption of fixed capital 280 Gross private domestic investment 900 Government consumption expenditures 520 Government investment expenditures 200 Imports 580 Exports 680 Household consumption expenditures 3105 Net property income paid overseas 20
• Calculate GDP and the country's gross national expenditure using the expenditure approach (2 marks)
• Using the data given in Table 1, compute net domestic product (NDP) (1 mark).
• Again using the data from Table 1, derive the country's gross national product (GNP) and its net national product (NNP). What is the country's current account balance? What is the country's gross national saving? (2 marks)

QUESTION 2 (5 marks)

The real GDP figures for each of 10 quarters are shown in Table 2.

Table 2 Quarterly real GDP (billions of dollars)

 Quarter Real GDP (billions of dollars) 1 250 2 300 3 350 4 325 5 300 6 400 7 500 8 600 9 575 10 620
• Plot these data points and identify the two phases of the business cycle. (1 mark).
• Is the decline in real GDP from \$600 billion to \$575 billion a recession? Why and why not? (1 mark).
• What is the relationship of frictional, structural, seasonal and cyclical unemployment to the full-employment rate of unemployment (alternatively known as the natural rate of unemployment)? (1.5 marks)
• Do you agree that one goal of macroeconomics should be to reduce the measured unemployment rate to zero? Why or why not? (1.5 marks)

QUESTION 3 (5 marks)

• Identify the three ranges of the aggregate supply curve. Explain the impact of an increase an increase in aggregate demand in each segment. (1 mark)
• Assume an economy operates in the intermediate range of its aggregate supply curve. State the direction of effect on aggregate demand or aggregate supply for each of the following changes in conditions. What is the effect on the price level? On real GDP? (4 marks)
1. The price of crude oil drops significantly due to the application of a new extraction technology known as ‘fracking’.
2. A new strategic pact with a group of neighbouring nations is struck which the federal government judges will allow it to spend significantly less on defence for a few years.
3. A severe recession occurs in a country which has been a major importer of the nation's exports.
4. A new carbon emission reduction tax is introduced by the government which is imposed on industry and electricity generators.

QUESTION 4 (5 marks)

(a) Considering the criteria of being a medium of exchange, a unit of account and a store of value, could each of the following items potentially serve as money? (2 marks)

1. A MasterCard card
2. A Peercoin
• Salt
1. Coffee cups

(b) Now consider the four items in terms of scarcity, portability, divisibility and uniformity. (2 marks)

(c) Based on the simple quantity theory of money, what would be the impact of increasing the money supply by 5%. (1 mark)