ECO80001 Economics Module 06 (Macro Concepts)

SUGGESTIONS FOR ANSWERING TUTORIAL QUESTIONS FOR MODULE 06

MACROECONOMIC CONCEPTS AND MEASURES
Note: Questions marked with a [B] are mainly for reviewing background and relatively
straightforward material. [E] indicates extras uestions for dee!er learning. "he remaining
#unmarked$ uestions are regarded as standard. %or assessment& all three ty!es of uestions will
be included& but a ma'ority of them will be at the (standard( level.
Answers to Multiple-!oi"e Questions
1. c 2. e 3. b 4. c 5. d
Su##estions $or Answerin# S!ort-Answer Questions
1. ational income accountin!.
a) "#$ %ill increase b& ' 4000.
b) "#$ %ill increase b& ' 1000. (()e rest comprises non*mar+et transactions.)
c) ,ll o- t)is transaction is non*mar+et. .t %ill not be included in national income accountin!/ and
"#$ %ill not be a--ected.
d) "#$ %ill increase b& ' 4 million.
e) "#$ %ill not be a--ected. ()ere is no ne% production )ere (i- %e i!nore t)e ser0ices in0ol0ed
in transportin! t)e e1uipment to &our uni0ersit&).
-) ()e resale o- t)e 2impsons3 old )ouse is not counted (-or simplicit&/ %e are i!norin! t)e
ser0ices in0ol0ed in trans-errin! t)e )ouse -rom one !roup o- o%ners to anot)er/ suc) as real
estate a!ents4 ser0ices/ solicitors4 ser0ices/ etc.). ()e sale o- t)e ne% )ouse is counted/
)o%e0er. "#$ %ill increase b& ' 580/000
2. Components o- a!!re!ate e5penditure.
a) consumption increases.
b) in0estment (d%ellin! in0estment) increases.
c) !o0ernment purc)ases increase.
d) consumption increases/ imports increase/ net e5ports decrease
e) in0estment (business -i5ed in0estment) increases.
3. "#$ 2tatistics
a) 6.38 6 4.01 6
b) 2.68 6 2.61 6
c) 5442.7 5637.1 5816.1
d) 3.60 6 1.38 6
e) 9ecause t)e in-lation rates :see (b) abo0e; %ere positi0e. <isin! prices =in-late> "#$/ ma+in!
nominal "#$ !ro% -aster t)an real "#$. "ro%t) in nominal "#$ :see (a); is appro5imatel&
e1ual to t)e sum o- t)e in-lation rate :see (b); and t)e !ro%t) in real "#$ :see (d);.
4. ,ustralian e5ports/ imports and net e5ports.
a) .mports increase/ net e5ports decrease.
b) E5ports increase/ net e5ports increase.
c) E5ports increase/ net e5ports increase.
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ECO80001 Economics Module 06 (Macro Concepts)

d) E5ports increase/ net e5ports increase.
e) .mports increase/ net e5ports decrease.
Su##estions $or Answerin# Dis"ussion Questions
1. Most people are a--ected b& t)e state o- t)e econom&. .ndi0iduals loo+in! -or ?obs %ill -ind
emplo&ment more easil& i- t)e econom& is e5pandin! t)an i- it is contractin!. @irms interested in
e5pandin! %ill -ind it more pro-itable to do so i- t)e demand -or !oods and ser0ices is )i!) rat)er
t)an lo%. "o0ernment o--icials %ill -ind t)at t)e 0oters are !enerall& )appier in !ood economic
times t)an in bad. 9ecause people are a--ected b& o0erall economic conditions/ t)e& tend to be
interested in t)e macroeconomic statistics %)ic) re0eal t)e )ealt) o- t)e econom&.
More speci-icall&/ man& -amilies and businesses are a--ected directl& b& c)an!es in interest rates.
.n turn/ t)e monetar& aut)orities (mainl& t)e <9,) %atc) t)e in-lation rate/ "#$ !ro%t)/
unemplo&ment rate/ e5c)an!e rates and ot)er macroeconomic 0ariables %)en t)e& set t)e
benc)mar+ interest rate. 2o a lot o- people pa& close attention to interest rate mo0ements and to
de0elopments t)at ma& prompt t)e <9, to alter interest rates.
E5porters/ importers/ tourists and international students are a--ected directl& b& c)an!es in t)e
e5c)an!e rate. ()is is %)& t)e& are particularl& interested in t)is macro 0ariable.
2. 2ee rele0ant sections in t)e te5tboo+/ and rele0ant lecture slides/ -or discussions o- t)e ad0anta!es
and limitations o- usin! real "#$ per person as a measure o- li0in! standard and o- )appiness.
Aour tas+ no% is to use all t)is in-ormation to create a %ell*structured and readable ans%er to t)e
1uestion.
,s a !uide/ &our ans%er mi!)t include t)e -ollo%in! pointsB
<eal "#$ per capita is a con0enient indicator o- li0in! standard/ because it is readil& a0ailable/
and because it tends to be correlated %it) indicators o- material %ealt) (suc) as t)e number o-
cars or telep)ones or )ospital beds per person) and %it) indicators o- socio*economic
de0elopment (suc) as li-e e5pectanc&/ in-ant mortalit&/ le0el o- education/ etc.).
.t is/ )o%e0er/ an imper-ect indicator o- li0in! standard/ becauseB
it i!nores non*mar+et transactions/ especiall& )ouse)old production/ so ma& not re-lect
accuratel& t)e true !ro%t) in total productionC
it ta+es no account o- )o% muc) leisure people )a0eC
it pro0ides no in-ormation about )o% t)e national income is distributedC
it does not measure t)e impact o- economic acti0ities on t)e en0ironmentC
it does not measure t)e 1ualit& o- li-e (suc) as t)e amount o- stress -or a representati0e
person at %or+).
@urt)er/ "#$ per person is a 0er& imper-ect measure o- o0erall %ellbein!/ or )appiness/
because a person %)o e5periences a )i!)er standard o- li0in! (e.!./ more !oods and ser0ices/
more leisure time/ less stress at %or+) ma& still -eel no )appier i- )isD)er nei!)bours en?o& e0en
-aster rises in li0in! standards.
On balance/ it appears reasonable to conclude t)at t)e li0in! standard in ,spaci-ica )as
increased/ but it is di--icult to be precise about t)e ma!nitude o- t)is impro0ement. ,s -or
)appiness/ it is not clear at all %)et)er people are )appier no%ada&s and/ i- so/ b& )o% muc).
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