TASHFIQ AHMED

1811828630
ECO104
SEC:10
SUMMER’21

MID TERM EXAM

Answer to The Question No:1

(A)

We know that the aggregate supply shows how much the output and prices of goods and services
increases due to aggregate demand. The aggregate supply curve determines the cost of each level of
employment and the aggregate demand curve determines maximum earning possibility in a country of
each level of employment. So, from the aggregate supply model we can predict the cost of each level of
employment of Bangladesh while from the aggregate demand model we can predict the maximum earning
possibility in Bangladesh of each level of employment.

(B)
The aggregate supply curve shows the connection between the price level and quantity supplied (real
GDP). The short run aggregate supply curve is upward sloping. An upward sloping short run aggregate
supply curve means that as the price level increases, quantity supplied (real GDP) increases.
Wages are sticky (inflexible) due to ‘labor contracts. Firms pay nominal wage but make recruitment
decisions based on real wage. If price level increases, then real wage decreases, quantity demanded of
labor increases and quantity supplied of all goods and services (Real GDP) increases assuming ceteris
paribus.

Answer to The Question No:2

(A)
Here, we can see that country Z has increasing GDP, but that doesn't mean the citizens of country Z can
enjoy more goods and services because real GDP suggests total output of production within a specific
period of time but James doesn’t provide any information about population growth. If the population
growth is increasing in a higher rate than the increasing growth of GDP which implies that the increasing
number of citizens are consuming more good and services but the production is not that much high
because the GDP is not increasing as much as the population growth which might lower the consumption
of goods and services by the citizens. So, we can say that James's conclusion might be wrong.

(B)
The GDP of country A is higher than GDP of country B. That doesn't mean country A will always have a
higher amount of total income of citizens than country B. It can be both that means the total income of the
citizens of country A can be greater than country B or lower than country B.
Floyd ignores an important factor which is the total population of both the countries. If the population
growth of country A is higher than country B then the amount of total income of citizens of country A
will be lower than country B. So, here the conclusion of Floyd might be wrong.
On the other hand, If the population growth of country A is lower than country B then it will increase the
GDP of country A which will help to increase the amount of total income of citizens of country A than
country B. So, here the conclusion of Floyd might be right.
 Answer to The Question No:3

Above shown is the circular model flow which can be used in Bangladesh economy. We can see that this
model has three components; government, household and businesses. From the flow we can say that for
income and expenditures household and firms depend on each other. When households buy goods from
the domestic product markets (e.g., Evaly, Shawpno), the expenditure is called consumption (C) and
money flows into the product markets. However, the household also spends on foreign goods which cause
money to flow out of the economy. This expenditure is called imports (IM) and needs to subtracted from
total expenditure of the economy. Similarly, when foreign economies buy goods from the domestic
product markets, the activity is called export (EX) and again money flows into the goods market. As firm
produce goods and services, they need labor and for that they need to pay wages and rent to the household
which is income for them and then they use their income to buy goods and services from firm and this is
the income of firm. When government purchases goods from the product markets, the expenditure is
called government purchases (G) and money again flows into the product markets. From the chart we can
see that the government plays a role of a middle man to boost the economic growth and they also work for
the benefit of the people. And now the question is what is the source of income of the government? The
answer is pretty simple that is the tax collected by household and firms. And then they use this income for
economic growth and to increase employment for household and public sectors. And from this income
they also purchase resources to make it more productive. This is how the circular model flow works.

Answer to The Question No: 4

(A)
In real world we can calculate the GDP using 2 methods. They are income approach and expenditure
approach. In an economy, total expenditure = total income. I think income approach is the better way to
calculate GDP for Bangladesh. To calculate the GDP, we need to look at the money that has been spent
on them. Money spend is expenditure and money received is income.
We know, in income approach;
GDP= National income (Compensation of employees+ Proprietor’s income+ Corporate Profits+ Rental
Income+ Net Interest) + capital consumption allowance + statistical discrepancy
And, to calculate in expenditure method we need to sum the spending of Consumption (C), Investment
(I), Government purchases(G), Net Exports (NX) of four sectors of the economy (household, firms,
government, rest of the world)
So, from calculating methods and its components we can say that income approach has fewer components
and it’s easy to find out GDP in this way. So, I think income approach will be a better way to calculate
GDP for Bangladesh.

(B)
Importing means revenue goes out of the country as different foreign products are purchased from
different foreign countries so the money is going out of the country which will cause a decrease in a
country’s GDP. The products that are imported aren't producing by the country and by this we’re giving
money to foreign countries and the money is also going out of economy. That's why when calculating the
GDP using the expenditure method we subtract “imports”.

(C)
GDP is the total amount spent on goods and services produced in a country by households, firms,
government and foreigners. It includes output produced in the economy. the ownership of the factors of
production does not matter. This is the reason, while calculating the GDP of Bangladesh using the income
approach, “earnings of foreigners living in Bangladesh” is added.

(D)
Only the products and services produced within the boundary of countries are included in GDP. Earnings
by a Bangladeshi living in foreign will not contribute in our country’s GDP or economy because the
money is not earned within the country. That's why when calculating the GDP of Bangladesh using the
income approach we subtract “earnings by Bangladeshis living in foreign countries”

Answer to The Question No: 5

Due to the lockdown all the industries and offices of a country are closed. Local transports are stopped.
No tourism is allowed. Profit from these sources is absolutely zero. Though these are the main factors of
income of a government of any country. This will surely slower down and decrease the GDP. But there is
nothing that can be done because all the countries are going through the same situation.
The lockdown has caused recession in the world. Income output and employment has been decreased. So
aggregate supply has been decreased due to this lockdown because income is reducing, people are losing
their job, production is decreasing, there has been scarcity in supply. These things have created a bad
impact on the aggregate demand.
As the aggregate demand has been decreased so the demand curve will shift backwards and due to
decrease in aggregate supply the curve will shift backward. For that equilibrium price will increase from
P to P1 and GDP equilibrium will decrease from Y to Y1. As the real GDP has been decreased so,
unemployment will increase and economic growth will decrease.
 Answer to The Question No: 7
(A)
The unemployment rate is the percentage of civilian labor force that is unemployed that means the legal
civilian labor force who are willing to get a job but are not getting a job. It is equal to the number of
unemployment person divided by civilian labor force. An unemployment rate of 5.30% indicated that
among to total labor force 5.30% people are jobless. If we take total labor force is 100 people so
unemployment rate 5.30% means among those 100 labor force people 5.30 people are jobless.

(B)
The unemployment rate can never be 0. It is never possible to have zero unemployment in an economy.
Because in an economy scarcity is must. Without scarcity there is no economy. That's why it is told that
in heaven there is no economics because in heaven there is no scarcity. So, always some unemployment
will exist due to structural and seasonal changes in economy. And also limited amount unemployment
rate is good for economy.

Answer to The Question No: 8

(A)
From the question we can see that in 2019 the CPI of Bangladesh was 258.65 and in 2020 the rate
was273.26. The increasing CPI values, from 2019 to 2010, informs us that the average price of the goods
and services that an average household in Bangladesh buys have been increasing. This is a problem
because it means with their income, they will be able to buy less goods and services. CPI is measure that
is used to measure the inflation. Higher the CPI, higher the inflation rate. The purchasing power of our
income/salary decreases when the average price of goods and services (CPI) increase. Decreased
purchasing power also indicates inflation. In Bangladesh, the CPI has increased from 258.6 to 273.26
which shows an accelerated inflation rate.in this one year the CPI has increased (273.26-258.6) 14.66.
From the analysis we can say that, the price level increased comparatively more than our income and
hence we can buy less goods and services in 2020 as compared to 2019.

(B)
CPI is both directly and indirectly related to wage increase. CPI is used to determine the changes in cost
of living those changes within a year. It is a useful method to measure the wages as it is an indicator to the
changes in purchasing power and predict how the prices will be in the future. As in 2019 the CPI was
258.65 and in 2020 it increased to 273.26 that means the cost of goods has increased thus wages will also
increase. An increased CPI will lead to increase in nominal wages annually because as the CPI has
increased so that cost of goods has also been increased. This is how business organizations can use the
given CPI values to adjust the wage of their employees. As the CPI has increased from 2019 to 2020, they
will have to increase the wage of their employees,