Written Assessment ECO10004 Economic Principles Part C
Due Date – See Canvas under the assessment tab
All work must be submitted using the turnitin link (see below for more instructions)
Please do not attach a coversheet to your assignment. Also, do not include a copy of the questions in your document.
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Marking Scheme and word count
- The total marks for the written assessment is 50 and represents 50% of your total mark for the unit. Part A is worth 12; Part B is worth 20 and Part C is worth 18.
- Each question is worth either 1, 2 or 4 marks as indicated (at the end of each question).
- A word count is set for each question (at the end of each question). Answers should not be larger than the word count (they can be smaller but you should ensure that you have addressed all aspects of the question).
Task 6: GDP, economic growth, unemployment and inflation
- Mr Lee is a previously self-employed man with an income of $4500. 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 employee will now receive unemployment benefits worth $1000 per annum. The change in National income as a result was________. Explain (2 marks).– Word Count 100
The following table 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.
| Quarter | Consumer price |
| index; All groups – | |
| Quarterly | |
| Mar-2009 | 92.5 |
| Jun-2009 | 92.9 |
| Sep-2009 | 93.8 |
| Dec-2009 | 94.3 |
| Mar-2010 | 95.2 |
| Jun-2010 | 95.8 |
| Sep-2010 | 96.5 |
| Dec-2010 | 96.9 |
| Mar-2011 | 98.3 |
| Jun-2011 | 99.2 |
| Sep-2011 | 99.8 |
| Dec-2011 | 99.8 |
| Mar-2012 | 99.9 |
| Jun-2012 | 100.4 |
| Sep-2012 | 101.8 |
| Dec-2012 | 102.0 |
| Mar-2013 | 102.4 |
| Jun-2013 | 102.8 |
| Sep-2013 | 104.0 |
| Dec-2013 | 104.8 |
| Mar-2014 | 105.4 |
| Jun-2014 | 105.9 |
| Sep-2014 | 106.4 |
| Dec-2014 | 106.6 |
| Mar-2015 | 106.8 |
| Jun-2015 | 107.5 |
| Sep-2015 | 108.0 |
| Dec-2015 | 108.4 |
| Mar-2016 | 108.2 |
| Jun-2016 | 108.6 |
| Sep-2016 | 109.4 |
| Dec-2016 | 110.0 |
| Mar-2017 | 110.5 |
| Jun-2017 | 110.7 |
| Sep-2017 | 111.4 |
| Dec-2017 | 112.1 |
| Mar-2018 | 112.6 |
- Calculate the year-end (or annual) inflation rate for the March 2017 quarter. Show all workings including the formula used. (1 mark) – Word Count 30
- 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. (1 mark) – Spreadsheet only. Answers to 1 decimal place.
- 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
Is the following transaction included in GDP in 2019. Explain. Note: If the transaction is included, determine which component it effects.
- You buy a new car in 2019, which was manufactured in 2018 in Australia (as indicated by your vehicle’s title). (1 mark) – Word count 50
- Give two reasons why measured GDP does not reflect total production in an economy. (1 mark) – Word count 80
- Suppose an economy has only three goods, and the typical family purchases the amounts given in the following table. If 2005 is the base year, then, what is the CPI for 2015? Compare this figure to CPI in 2005 and explain the difference. Show all working out. (2 marks) Word count 80
| Product | Quantity | Price | Price (2015) | |
| (2005) | (2005) | |||
| Computers | 2 | $1700 | $1200 | |
| Books | 50 | $25 | $30 | |
| Burgers | 150 | $1.00 | $2.00 | |
| Total |
Task 7: Business Cycle and Aggregate Demand & Supply
- Starting from long-run equilibrium, use the basic (static) aggregate demand and aggregate supply diagram to show what happens in Australia, in both the short run and the long run, when there is a decrease in GDP in USA. Explain your diagram. (2 marks). – Word count 150
Explain how each of the following events in questions 2 and 3 would affect the aggregate demand curve. No graph required
- Domestic prices decrease relative to prices in Australia’s trading partners. (1 mark) – Word count 50
- Domestic household’s purchase of new houses falls. (1 mark) – Word count 50
- Consider the situation where there has been a decline in real GDP growth rates, inflation, and employment rates. What part of the business cycle do you think the economy is currently in? what other indicators could you use to confirm this? (1 mark) – Word count 80
Read the following excerpt and answer the following question
Australia’s economic growth jumps to 3.4 per cent in the June quarter
Australian economic growth has picked up pace, growing by 3.4 per cent in the year to the end of June fuelled by consumer spending and financed by shrinking household savings. It is a step up from the 3.1 per cent year-on-year GDP growth in the March quarter and above the 3 per cent the Reserve Bank had forecast. …
The household sector, which has been struggling under low wage growth and falling house prices, was the main contributor to the growth spurt. It accounted for 0.4 percentage points, or just under half the quarter’s growth, picking up the baton from the export sector, which supported the first quarter’s strength. This time around, net exports contributed a more modest 0.2 percentage points. Residential construction was also another strong contributor.
“Growth in domestic demand accounts for over half the growth in GDP, and reflected strength in household expenditure,” ABS chief economist Bruce Hockman said. “Domestic demand increased 0.6 per cent for the quarter, driven by a 0.7 per cent growth in household consumption, with increased expenditure on both discretionary and non-discretionary goods and services.” Household consumption rose by 3 per cent over the
year, while government consumption was stronger, up 5.1 per cent over the 2018 financial year. “Public investment [I.e. government spending] remained at elevated levels reflecting continued work on infrastructure projects across the nation,” Mr Hockman added.
Federal Treasurer Josh Frydenberg said the outcome was stronger than the GDP growth figures that underpinned the budget. “Nominal [non-inflation adjusted] GDP grew by 4.7 per cent on a year average basis. This was also above our budget forecast of 4.25 per cent as prices for key commodities have remained higher than we prudently assumed,” Mr Fydenberg said. …………
However, a deeper dive into the figures shows that the consumption boom has again been financed by households eating into their savings. The household saving ratio has tumbled to its lowest level in more than a decade. Savings as a ratio of income was more than 10 per cent in 2008. That has crashed to 1 per cent this quarter.
Wages growth continued to soften, with the compensation of employees growing by 0.7 per cent over the quarter, down from 1.1 per cent in the previous quarter and half the rate of growth late last year. Average compensation per employee — which takes population growth out of the equation — continues to be anaemic, down to 0.1 per cent over the quarter. “This indicates growth in employees is outgrowing wage rates,” the ABS said.
- Explain, using the AD/AS framework and with the aid of a graph, what has led to increases in GDP. The Treasurer cites nominal GDP figures as evidence that the economy was growing strongly. Is nominal GDP the best measure to use? Finally, what are the risks to future growth? [Hint: what sector of the economy (Household, Business or Government) is not mentioned as contributing strongly to GDP] (4 marks). – Word count 350
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