ECO121 Macroeconomics

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Term: Fall2023
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Student Information
Name: NGUYỄN THU HUYỀN Roll number: HS150337
Room No: DE-C306 Class: IB1808

FOR TEACHER ONLY

MARK MARKED BY Signature of Proctor
(NAME AND SIGNATURE)

Assignment 2

Question1 (2 marks)

Assume that in the Economy only two goods are produced: Pencils and Erasers. Macroeconomics
information for this economy is given in the below
a. What is the value of Nominal GDP in 2011 and 2012? What is the percentage increase?

Nominal GDP in 2011 = 100 x $1.00 + 200 x $1.00 = $300

Nominal GDP in 2012 = 110 x $1.50 + 220 x $1.10 = $407
Percentage increase = (($407 - $300) / $300) x 100% = 35.6%

b. What is the value of Real GDP in 2011 and 2012, by considering 2011 as the base year? What is
the percentage increase?

Real GDP in 2011 = $300

Real GDP in 2012 = 110 x $1.00 + 220 x $1.00 = $330
Percentage increase = (($330 - $300) / $300) x 100% = 10%

c. What is the value of the GDP deflator in the two years? By what percentage does the price level
change from the base year to 2012?

GDP Deflator in 2011 = ($300 / $300) x 100 = 100

GDP Deflator in 2012 = ($407 / $330) x 100 = 123.33

d. Was the increase in Nominal GDP due more to an increase in prices or in the volume of output?

Increasing in Nominal GDP due more to an increase in prices because Nominal GDP values output
using current prices.

e. What was the growth rate of average labour productivity for the whole economy between 2011
and 2012?

Productivity in 2011 = 300/1000 = 0.3

Productivity in 2012 = 330/1100 = 0.3
The growth rate of average labor productivity for the whole economy between 2011 and 2012 is
0%.

2011 2012

Output (Pencils) 100 110

Output (Erasers) 200 220
Employment (Pencils) 500 600
Employment (Erasers) 500 500
Price per Pencil $1.00 $1.50
Price per Eraser $1.00 $1.10

Question 2 (2 marks)
The table below shows the transaction in the country of America last year:

Items: Amount (millions of dollars)

Compensation of employees 100
Consumption expenditure 120
Net Indirect Taxes 40
Transfer payments 15
Corporate Profits 35
Investment expenditure 30
Government purchases of goods and services 50
Exports 30
Depreciation 40
Net Interest income 15
Imports 40

a. What was the GDP in America last year?

 GDP = Consumption + Investment + Government Spending + Exports - Imports
= 120 + 30 + 50 + 30 - 40
= $190 million (GDP in America last year)

b. What approach did you use to make this calculation?

I used the expenditure approach to calculate GDP.
Y = C + I + G + NX

c. What was the Net Domestic Product, NDP (net domestic product), in America last
year?.
NDP (Net Domestic Product) = GDP - Depreciation
= 190 – 40
= $150 million

d. What was the value of total output in America last year

The value of total output in America last year is represented by GDP, which is $190
million.

e. If the (real) GDP in America last year was 160, what was the GDP deflator in
America last year?
GDP Deflator = (Nominal GDP / Real GDP) * 100
= (190 / 160) * 100
= 118,75
The GDP deflator in America last year was 118,75

Question 3 (2 marks)

Refer to the information provided in Table 6.1 below to answer the questions that follow.

a. Personal consumption expenditures in billions of dollars are

Personal consumption expenditures (C) can be calculated as follows:
C = Durable goods + Nondurable goods + Services
= 400 + 600 + 650
= 1650 billion dollars
b. The value for gross private domestic investment in billions of dollars is
Gross private domestic investment (I) can be calculated as follows:
 I = Residential investment + Nonresidential investment + Change in business inventories
= 50 + 300 - 25
= 325 billion dollars

c. The value for net exports in billions of dollars is

NX = Exports - Imports
= 500 - 150
= 350 billion dollars

d. The value of gross domestic product in billions of dollars is

The value of Gross Domestic Product (GDP) can be calculated using the expenditure
approach:
GDP = C + I + G + NX
Where G (government spending) is not explicitly provided in the given information. We
will have to assume a value for G to calculate GDP. For the sake of this calculation, let's
assume that government spending (G) is the sum of Federal purchases of goods and State
and local purchases of goods:
G = 300 (Federal purchases of goods) + 250 (State and local purchases of goods)
G = 550 billion dollars
Now, we can calculate GDP:
GDP = C + I + G + NX
GDP = 1650 + 325 + 550 + 350
GDP = 2875 billion dollars

e. The value of government spending in billions of dollar

(Federal purchase of goods + State and local purchases of goods)= (300+250)=550

Question 4 (4 marks):

Write an Essay (250 words) to Identify and discuss factors that affect Exports, Saving and
Investment in both closed and open Economy.

Exports, saving, and investment are crucial components of any economy, whether closed or open.
These factors play a vital role in determining a nation's economic growth, stability, and prosperity.
Understanding the key determinants of these variables is essential for policymakers and economists
alike. In both closed and open economies, various factors influence exports, saving, and
investment.

In a closed economy, where there is no international trade, exports are non-existent. Instead,
domestic production and consumption become the primary drivers of economic activity. Factors
affecting savings and investment include interest rates, income levels, and consumer confidence.
Higher interest rates typically encourage saving and reduce consumption, while lower rates
promote investment due to cheaper borrowing costs. Income levels also impact saving and
investment, as higher incomes tend to lead to increased savings and greater opportunities for
investment. Moreover, consumer confidence plays a role, as people are more likely to save and
invest when they are optimistic about their economic prospects.
In an open economy, exports become a significant driver of economic growth. Factors affecting
exports include exchange rates, global demand, and trade policies. A depreciating domestic
currency can make exports more competitive, increasing foreign demand for a country's goods and
services. Global economic conditions and trade policies, such as tariffs and trade agreements, also
influence export levels. Moreover, global demand conditions, influenced by factors such as
economic growth in other countries, can impact export levels.

Saving and investment are equally influenced by external factors in an open economy. Foreign
investment, capital flows, and exchange rate stability can impact both domestic saving and
investment. Stable exchange rates can encourage foreign investors to enter the domestic market,
while capital inflows can boost investment opportunities. However, these factors can also lead to
trade deficits if they exceed the savings rate.

In conclusion, exports, saving, and investment are intricately linked to an economy's performance,
whether it is closed or open. While the factors affecting these variables differ between the two, they
are equally critical in shaping a nation's economic fortunes. Policymakers must consider these
factors when making decisions to ensure a robust and stable economic environment.
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