Economics assignment on: Advantages to an economy in terms of its growth
Q1. Economic growth brings advantages to an economy. Define economic growth & explain its importance to an economy.
Ans1. Economic Growth has been defined as the capacity to satisfy the members of the economy. Economic growth has been defined as an increase in the level of productivity which would lower the inputs such as capital, labor, energy, etc for a particular level of output. Economic growth also leads to an increase in the level of population growth as well as introduction of new products & services.
Economic growth brings advantages to an economy. Economic growth would play one of the crucial roles in an economy. With the help of economic growth, the income per capita income increases at a high pace. This would in turn lead to an increase in the overall growth of the economy. With the help of economic growth, the GDP per capita of a particular economy would increase which would thereby enhance the living standards of the people.
Q2. Gross Domestic Product (GDP) is used as a measure of economic growth. Define GDP & distinguish between nominal & real GDP.
Ans2. Gross Domestic Product known as GDP, refers to the total market value for all the goods & services produced in the country. The GDP of a particular country refers to the total of Investment, Consumption, Government spending & Net Exports. Rise in GDP of a particular economy would have a positive impact over the growth of a particular economy.
The difference amongst nominal & real GDP could be expressed as follows. Nominal GDP would refer to the value expressed in monetary units of a particular currency. On the other hand, real GDP refers to the value adjusted against the nominal value. Real GDP values would refer to the purchasing power of any change in the price over a specified period of time. The nominal GDP value of the commodity could be expressed in terms of prices & quantities for different commodities.
Q3. Economic experience alternating periods of growth & downturns in economic activity, called the business cycle. Discuss the characteristics of each of the four phases of the business cycle. Draw a diagram of the business cycle & identify where New Zealand economy is forecast to be the first quarter of 2005. Justify you choice of position.
Ans3. Economic experience alternating periods of growth & downturns in economic activity, called the business cycle. The four phases of the business cycle would be as under:
Þ Prosperity Phase
Þ Recession Phase
Þ Depression Phase
Þ Recovery Phase
Prosperity Phase refers to the type of phase where the economy expands in terms of output, productivity, employment, prices, standard of living etc. Some of the features of this phase are high levels of trade, output, inflation, rise in the level of interest rates, optimism of the entire business, etc.
Recession Phase refers to the type of phase where there is a shift from prosperity to depression. Some of the features of this phase would be decline in demand, over production of the goods, decline in the employment, prices & the profits at large.
Depression Phase refers to the type of phase where there is a continuous decline in the level of income, output, prices & the employment. Some of the common features would be decline in the output of goods & services, consumption & demand, fall in interest rate, deflation, etc.
Recovery Phase refers to the type of phase where there is a shift from depression to expansion phase. Some of the common features of the same would be as under demand would increase, production would expand, rise in the levels of output, gain confidence & act positive
New Zealand in the year 2005 was at the recovery phase refers to the type of phase where there is a shift from depression to expansion phase. There was an increase in the level of demand which thereby led to an increase in the level of production giving rise in the levels of output, gain confidence & act positive. These features states that, the economy was at a recovery stage.
Q4. Outline five macroeconomic goals/objectives of the New Zealand economy.
Ans4. The five macroeconomic goals or objectives of the New Zealand economy could be as under. They are as follows:
Þ The government debt for the New Zealand would be reduced to a certain level. This means that, though the current debt level at New Zealand is quite high. Thus, the government officials should try to reduce the outstanding debt.
Þ Once the level of debt has been maintained up to a certain level, a balanced budget should be prepared for a long run.
Þ The government would achieve as well as maintain the net worth up to a certain level as some buffer has been maintained for unforeseen future activities.
Þ The government ought to manage the fiscal risks in the most prudent manner.
Þ The government would adopt various policies or procedures which would help the economy in order to be quite consistent in the years to come.
Q5. Describe the components of AS/AD model. Use an AS/AD graph to illustrate New Zealand’s current position assuming it is below full employment. Use your graph.
Ans5. Aggregate Demand in macro economics refers to the total demand for all the goods & services produced in an economy (Y) at particular period of time & price level. It refers to the amount charged for all the goods & services purchased at every possible level.
The equation for aggregate demand could be
AD = C + I + G + (X – M)
Where,
Þ C = consumption
Þ I = Investment
Þ G = Government spending
Þ X – M = Net export
The four major components of AD could be measured either in minimal or real terms as well. Consumption refers to the demand which has been generated by the households as well as the individuals. The consumption function could be represented as C = a + mpc (Y-T)
“a” has been referred to as an autonomous consumption, whereas mpc refers to marginal propensity to consume & (Y-T) refers to the disposable income. Investment refers to the amount being spent by all the business firms. This would also comprise of the private sector that are aimed at producing consumable for the future years. It must be regarded that, planned or desired level of investment would be a part of aggregate demand.
Q6. Research & explain four factors that are influencing the New Zealand economy in 2010.
Ans6. The four major factors that have influence the New Zealand economy in the year 2010 would be as under:
Þ Consumer spending & global demand: The New Zealand economy in the year 2010 has risen with a rise in the consumer spending & global demand. In the year 2010, the economy has been expanded by 2.6%. The New Zealand government states in the quarterly report that the economy is expected to improve continuously in the years to come.
Þ Technological Factors: The use of upgraded technology has led to revolutionize the way business is to be conducted. Use of Information & communication technology i.e. ICT has led to a change in the education sector as well. Use of technology would help the children to contribute towards the increased opportunities. Proper access regarding the same should be made to the parents, teachers, lecturers, etc.
Þ Monetary Factors: The monetary factors have also influenced the New Zealand economy in a more effective of efficient manner. With the change in the monetary policies, the prices have been quite stable. The GDP growth rate has been associated with the low rates of inflation persistent in the economy. A negative relationship amongst the rate of economic growth along with the rate of inflation has been quite significant & has influenced the New Zealand economy in the most effective manner.
Þ Labor Force: The New Zealand’s labor force would influence this economy in a positive manner. The population at New Zealand has been on rise & the labor force too has led to an increase in the overall efficiency, productivity of the same. The participation of the labor force has increased to 66% from 62% in the previous years. With a rise in the number of labor force, there has been an increase in the levels of output.
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