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    Three Problem-Solving Questions that require written answers


    • Three Problem-Solving Questions that require written answers
    • Assignment Questions

    Question 1– 20 marks         

    Measuring GDP and Economic Growth

    The table lists some macroeconomic data for a country in 2015.

    Item Billions of dollars Wages paid to labour 569 Consumption expenditure 627 Gross income at factor cost 1,310 Investment 275 Government expenditure 351 Net exports Gross operating surplus -21 474  

    Calculate the country’s GDP in 2015. Then explain the approach (expenditure or income) that you used to calculate GDP.(4 marks)

    Quantities 2014 2015 Fish 2,000 tonnes 2,100 tonnes Crabs  600 tonnes   650 tonnes Coconuts 500 bunches 700 bunches       Prices 2014 2015 Fish $20 a tonne $30 a tonne   Crabs $10 a tonne $8 a tonne   Coconuts $10 a bunch $5 a bunch    

    An economy produces only three commodities – fish, crabs and coconuts. The base year is 2014, and the table gives the quantities produced and the prices.

    • Calculate chain volume measure of real GDP in 2014 and 2015 expressed in base-year prices.Then, calculate the real GDP growth rate between 2014 and 2015.(6 marks)

    Jobs and Inflation

    Australian Bureau of Statistics reported the following data for 2015:

    Labour force participation rate: 69.6per cent

    Working-age population (in thousands people): 18,429,726

    Employment-to-population ratio: 65.2

    • Calculate the labour force.(2 marks)
    • Calculate the employment.(2 marks)

    In New South Wales in October 2015, the labour force was 3,803,200 and 200,500 people were unemployed. In November 2015, the labour force decreased by 300 and the number employed increased by 2,900.

    • Calculate the unemployment rate in November 2015.(2 marks)

    CPI and Inflation

    The Lucky Country reported the following CPI data:

    June 2010  201.9

    June 2011  207.2

    June 2012  217.4

    (f).      Calculate the inflation rates for the years ended June 2011 and June 2012. How did the inflation rate change in 2012? (2 marks)

    (g).      Why might these CPI numbers be biased? (2 marks)

    Question 2 – 20 marks     

    Quantity Expansion (QE) of Money in the European Union (EU)

    On March 9 2015, the European Union (EU) commenced quantity expansion of money, Euro (€). The European Central Bank (ECB) has increased the quantity of money by 60 billion euro every month in the open market in an attempt to support the economy of EU countries. The large increase in the quantity of money is expected to have significant impacts on a range of economic sectors in the EU and global financial markets.

    • Analysehow the quantity expansion of euro money is likely to affect money supply, interest rate, investment and consumption, and economic growth in the EU.  Draw relevant graph(s) for your analysis.(5 marks)
    • Discuss how the quantity expansion of euro money would change the value of euro, exchange rate (depreciation or appreciation) against other currencies, and exports and imports in the EU.  How would this contribute to EU’s current account balance and would this improve the competitiveness of the EU economy in the global market?(5 marks)

    The United States is likely to Raise Interest Rate soon  

    The U.S. Federal Reserve chairman,Dr Janet Yellen, has signalled that the United States is likely to raise its interest rate as US economic indicators has improved. On the other side of the world, however, the interest rates in many other countries including the EU and Australia are on hold at their lowest level ever.

    • Explain, in the short run, how and why an increase in US interest rate is likely to change the flow of funds between the United States and Australia.  (2 marks)
    • Using a graph, explain how an increase in US interest rate is likely to affect loanable funds supply and interest rate in Australia. Also, analyse how the change in loanable funds supply and home loan interest rate are likely to influence housing demand, house prices, and household debt burden in Australia.(5 marks)
    • Discuss how and why an increase in US interest rate is likely to affect the value of Australian dollar and exchange rate (depreciation or appreciation) against the US dollar. Also, discuss how the change in exchange rate is expected to influence Australia’s exports, imports and the current account balance (improve or worsen).(3marks)

    Question 3– 20 marks         

    Exchange Rate and Balance of Payments

    In October 2012, the exchange rate was 82 Japanese yenper US dollar.  As a result of Abenomicsin Japan since late 2012 and economic recovery in the US, the exchange rate rose to 114 Japanese yen per US dollar in March 2016.

    • Draw a graph and explain what would have happened to the quantity of US dollarsupplied and the US exchange rate?What would have happened to the interest rate in the United States? Wouldpeople now plan to buy or sell US dollarin the foreign exchange market?(4 marks)
    • What would have happened to the quantity of Japanese yen supplied? Would people now plan to buy or sell Japanese yen in the foreign exchange market?(2 marks)

    In July 2015, Australian dollar is trading at US$0.75per Australian dollar and the interest rate in Australia is currently 2 per cent a year. It is forecast that the US will increase its interest rate sometime later this year.

    • If the interest rate in the US increases to 3 per cent a year, how is it likely to affect the flow of funds between Australia and the United States and the exchange rate of US dollar against Australian dollar (depreciation or appreciation)? What is likely to happen to the current account balance of the United States? (6 marks)

    Balance of Payments

    The table gives some information about the US international transactions in a year.

    Item Billions of U.S. dollars Imports of goods and services 2,561 Foreign investment in the US 955 Exports of goods and services 2,853 U.S. investment abroad 300 Net interest income 121 Net transfers −125 Statistical discrepancy 68  
    • Explain and calculate the current account balance.(2 marks)
    • Explain and calculate the capital account balance.(2 marks)
    • Did the US official reserves increase or decrease? Explain. (2 marks)
    • Was the US a net borrower or a net lender in this year? Explain your answer.(2 marks)

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