The economic performance of countries reflects both domestic and global economic conditions. Ever since the Global Financial Crisis (GFC) all major economies have experienced economic crises and downturns to varying degrees. You are required to collect and interpret data on the economic performance of Australia, the United States, and one European economy of your choice.
Question 1. (4 out of 20 marks)
Collect and present (in graph format), annual data for the years 2006 to 2014 showing the rate of growth of real GDP, the inflation rate, and the unemployment rate for Australia, the United States and one European country of your choice.
Using the graphing tool in Excel, present three time-series line graphs: one for each country containing all three variables. Label each axis and give your chart a title.
Question 2. (6 out of 20 marks)
Using the data collected for Question 1 – covering the years 2006 to 2014 -, present three comparative line graphs. The first graph will show the rate of growth of real GDP of Australia, the USA and your chosen European country. The second comparative line graph will show the inflation rate of the three countries and the third line graph will show the unemployment rate of the three countries.
What evidence do the data provide of the countries experiencing economic downturns in recent years? On the basis of the data collected, what similarities and differences are there in the performance of the economies?
Question 3. (6 out of 20 marks)
3.1 The table below gives values of real GDP or (Y) and all the other variables in millions of dollars. The goal is to determine the level of equilibrium real GDP, where Y = AE by filling in the values in the table below. To do this, start by assuming that net taxes (T) are $4000 at every level of real GDP. Now calculate Disposable income (YD) and show how you calculated the value for YD.
3.2 Next, you are given consumption(C) for one level of YD. If the marginal propensity to consume (MPC) is 0.7, determine consumption at all levels of real GDP and show how you calculated the value for C.
3.3 Suppose that planned investment (I), government purchases (G), and net exports (NX) are $4500, $5000, and $4500 respectively at all levels of real GDP. Using these values, calculate Aggregate Expenditure (AE) and show how you calculated AE.
3.4 Based upon these levels of AE, determine the level of unplanned investment (UI) at each level of real GDP and show how you calculated UI.
3.5 Use the levels of unplanned investment (UI) to determine in each case if real GDP (Y) will rise or fall, or remain unchanged. In other words, find, define, and explain the equilibrium level of real GDP (Y). (1 mark)
GDP T YD C I G NX AE UI Y will
$18,000 $4,000 $7,600 $4,500 $5,000 $4,500
3.6 Draw the AE diagram based on the table. (1 mark)
Question 4. (4 out of 20 marks)
4.1 Define the potential level of GDP, which is at $38,000. Will a contractionary or expansionary policy be required to move the economy towards potential GDP? Explain.
4.2 Find the size of the cuts or stimulus that the government needs. Explain and show how you calculated it. Explain the role and size of the multiplier. Why are the cuts or stimulus package less than the change in real GDP?
4.3 Show the effect of the government’s policy in the AE diagram you have drawn for Question 3 above.