Name:’Akuila Takataka Student ID Number:S11224082

Course Name: Principles of Macroeconomics Course Code: EC101

Question 1

a) 1065 billion
b) 1132 billion
c) 67 billion
d) Expenditure approach is a method of measuring GDP by calculating all spending throughout the
economy including consumer consumption, investing, government spending and net export. And
income approach is also a method of measuring GDP by summing the income that firm pay
households for the factors of production they hire.
e) The standard of living is sometimes measured using real GDP however real GDP can be
misleading for a number of reasons. Real GDP does not include household production or
productive activities done in and around home by the home owner. Because these tasks often
are an important component of people’s work, this omission creates a major requirement
problem. For example, creating your own table and chair using your own wood. Real GDP also
exclude the underground economy, economy activity that is legal but unreported or illegal. In
many countries, underground economy is an important part of economic activity, and its
omission create a serious measurement problem. For example, drug dealer all the activity they
do to earn money is not reported because it is illegal. Real GDP also does not include a
measurement of people health and life expectancy, both factor that obviously affect economic
wellbeing. Real GDP per person is a another set of socio-economic indicators that is used along
side GDP figure to indicate a reliable picture of a nation, standard of living.

Question 2

a) A F(L,K,H,N)
b) Fiscal policy is one factor that can cause a shift in aggregate demand. Fiscal policy refers to the
government action to influence the economy by setting and changing taxes, making transfer
payments and purchasing goods and services. A tax cut or an increase in transfer payment, will
increase household disposal income leading to an increase in household consumption
expenditure causing increase in aggregate demand and shifting the graph rightward. The second
factor is world economy. A falling in foreign exchange rate, lower the price of domestic product
and services relative to foreign goods and services, which increase export and decrease imports
which will increase aggregate demand and resulting in a rightward shift in graph.
c) First factor is potential GDP, potential GDP refer to real GDP the economy could achieve if they
operate in full employment. When potential GDP increase both long run and short run aggregate
supply shift rightward. And one reason that cause an increase in potential GDP is technology
advances, because technology advances will be result in more efficient in production, decreasing
cost of production resulting in increase in production and thus causing a shift in aggregate
supply. Second factor is money wage rate, when money wage rate rises the higher are the firm
costs and smaller the quantity that firms are willing to supply at each price level causing a
decrease in aggregate supply.
d) A rise in consumption expenditure will increase real GDP because consumption is a component
of real GDP. In the short run a rise in consumption brought about a decrease in interest rate
given the aggregate demand in the economy is likely to increase leading to an increase in price
level. The output gap created is inflationary gap.

LRAS SAS2

SAS1
price level

AD2

AD1

Real GDP

e) In the long run the economy will self-adjust to the long run equilibrium because shock only
matter in the short run but not on the long run. So, when shock occur, price will adjust and bring
the economy back to the long run equilibrium. In the case above price level will decrease leading
to a decrease in real GDP and then result in the economy self-adjust to the long run equilibrium.

Question 3
207.2−201.9 100
a) 2009= 2.625% x
201.9 1
217.4−207.2 100
2010=4.92% x
207.2 1
b) Higher wages increase household incomes and causing increase on household spending,
further increasing aggregate demand and the scope for firm to increase the price of their
goods and services. When this happens across a large number of business and sectors,
this will result in an increase inflation.

c) Firstly, these CPI might be bias due to quality change, in every year most goods their
quality improved and so as the price. So, part of the rise in price is the payment for the
improved quality and its not inflation but CPI count all the price rise as inflation. New
Good Bias, in every year new good that were not available in the basket appear and if
they are more expensive than the goods they replace, they put an upward bias into the
CPI.
 d) CPI and GDP deflator first different is CPI include all good bought by consumer even
imported good which are excluded in GDP deflator. GDP deflator included all domestic
good and not anything that is imported. The second difference CPI uses a fixed basket to
compare prices in determining inflation progress while GDP deflator uses the price of
the currently produced product relative to the price from the base year.
e) The statistic office is the one that responsible for computed and reported CPI. The
Statistic office create a multiple survey question to determine what’s in typical shopping
basket and used that data to compute CPI.

Question 4

535−525 100
a) 1.9% x
525 1
These variable measures the percentage change in real GDP from 1 year to another or growth of
an economy

b) 2009=$4114420.063
525000000
127.6
2010=$4196078.431
535000000
127.5
This variable measure average level of national income (adjusted for inflation) per person.

c) 1.98%

4196078.431−4114420.063 100
x
4114420.063 1
These variable measures the change in average level of national income per person.

70
d) 37 years =36.8
1.9
e) Firstly, is human capital growth are received through education, training skill and learning more
about the production of good, will help increase the production . For example, bakery if the
owner educated all of his worker in the most efficient to baked or the production processed, the
worker will be more productive and able to bake more bread than before and result in a big
increase in production of bread. Secondly, is Technological advances, the discovery and
application of new technology and new good help the labour to be more productive and thus
increasing production for example bakery, when they discover a better and more efficient
machine, they will produce more bread than before with the same quantity of factor of
production.

Question 5

a) 9600
 7000+2000+600

b) 87.27%

9600 100
x
11000 1
c) 81.82%
9000 100
x
11000 1
d) 6.25%
600 100
x
9600 1
Full employment is defined as the situation which the unemployment rate equals the natural
unemployment rate. So, when the economy is at full employment, there is no cyclical
unemployment only frictional and structural unemployment which are both natural
unemployment.
e) The above labour market indicator is obtained through a labour force survey in the economy
which conduct by Brownland Bureau of statistic by designing different kind of question about
labour and then distributed into every house to answer and then collected all the data and
processed the data to obtain the information above.