On March 9 2015, the European Union (EU) commenced quantity expansion of money, Euro (€). The European Central Bank (ECB) will increase the quantity of money by 60 billion euro every month in the op

Individual Assignment T218 BUS103/MEV Page 1 BUS10 3 Introduction to M acroeconomics Questions, Notes and Guideline for Individual Assignment Due : 5 S eptember 2018 Topic Three (3) Problem -Solving Questions that require written answers 1. General information 1.1 This assignment worth 20 marks and is to be submitted to the lecturer by 5.00pm, Wednesday 5 September 2018 .  There are 3 questions and each question will be marked out of 10 marks, consisting total of 30 marks. Then the marks will be converted to a total of 20 mark scale for 20 per cent of your total course assessment.  The marks that will be uploaded in Moodle later will be out of 20 marks (that is, 20 per cent of total assessment).  Assignment submitte d after 5.00pm Wednesday , 5 September 201 8 will not be accepted and marked zero. 1.2 This is not a group assignment but individual assignment. Each student must attempt to do the assignment and submit. 1.3 Each student must clearly print student name and ID on the Assig nment Cover Sheet. 1.4 You need to follow an appropriate format explained below . Not follow ing appropriate format will cause loss of some marks .  All written answers must be clearly typed and printed. Hand -written answers are NOT allowed.  All assignment questions and sub -questions should be typed in order at the heading.  Separate each main question by different page. For example, if Question 1 (a) (b) (c) and (d) are answered on pages 1 -2, then start Question 2 on page 3, etc. 1.5 The answers to the assignmen t questions should be written clearly and concisely with the main points on ly, and avoid irrelevant points. In your answers,  You should analyse, explain and show how and why you draw your answers. Providing just answers without explanation will not receive full marks .  You should also include appropriate and relevant diagrams, charts and table s together in your explanation . Draw them using Microsoft Word/Excel/Power Point tools, NOT hand drawn. 1.6 Copying the assignment contents from others is a serious vio lation of copy right. It will be penalized and attract a heavy loss of marks. Write the answers in your own English words . 1.7 Each must submit one HARD COPY of the assignment to Librarian in KOI. Individual Assignment T218 BUS103/MEV Page 2 2. Assignment Questions Question 1 – 10 marks Part A The table lists some macroeconomic data for a country in 201 4. (a) Calculate the country’s GDP in 201 4, using expenditure approach . (2 mark s) An economy produces only apples and oranges. The base year is 201 3, and the table gives the quantities produced and the prices. (b) Calculate real GDP in 201 3 and 201 4 expressed in base -year prices. Then, calculate the real GDP growth rate between 201 3 and 201 4. (3 mark s) Part B Australian Bureau of Statistics reported the following data for 201 4: Labour force participation rate: 64.5 per cent Working -age population (in thousands people) : 18,4 50 Employment -to-population ratio: 61.5 Calculate the (c) Labour force. (1 mark) (d) Employment. (1mark) (e) Unemployment rate. (1 mark) The Lucky Country reported the following CPI data: June 201 2 103.7 June 201 3 108.8 June 201 4 110 .1 (f) Calculate the inflation rates for the years ended June 2013 and June 2014. Explain how the inflation rate changed in 2014. What does it indicate on the price level? (2 marks) Item Billions of dollars Wages paid to labour 71 0 Consumption expenditure 780 Profit, interest and rents 45 0 Investment 230 Net t axes Government expenditure 11 0 240 Exports Imports 45 0 430 Quantities 201 3 201 4 Apples 76 78 Oranges 85 88 Prices 201 2 201 3 Apples $1.05 $1. 15 Oranges $0. 95 $1.03 Individual Assignment T218 BUS103/MEV Page 3 Question 2 – 10 marks Quantity Expansion (QE) of Money in the European Union (EU) On March 9 2015, the European Union (EU) commenced quantity expansion of money, Euro (€) . The European Central Bank (ECB) will increase the quantity of money by 60 billion euro every month in the open market in an attempt to support the economy of EU countries. The large increase in the quantity of money is expected to have significant impact s on a range of economic sectors in the EU and global financial markets. (a) Analyse how the quantity expansion of euro money is likely to affect money supply, interest rate, investment and consumption, and economic growth in the EU. Draw a relevant graph for your analysis . (3 marks) (b) Discuss how the quantity expansion of euro money would change the value of euro, exchange rate (depreciation or appreciation) against other currencies, and exports and imports in the EU. How would this contribute to EU’s current account balance and w ould this improve the competitiveness of the EU economy in the global market? (3 mark s) Bernanke’s Asian Savings Glut Theory Blasted A former U.S. Federal Reserve chairman Ben Bernanke sa id that high saving rates in Asia were to blame for the extraordinarily low bond rates during the first half of the 1990s , as well as U.S. soaring house prices and current account deficit. Claudio Borio, research director at the Bank for International Settle ments, sa id Bernanke was wrong and excessive lending by financial institutions caused low interest rates. (c) Draw a graph and explain how the high savings in Asia could have affected the global loanable funds market, the world real interest rate and investme nt in other countries . (3 mark s) (d) Discuss h ow excessive lending by financial institutions in the United States might have caused soaring house prices in the United States . (1 mark) Individual Assignment T218 BUS103/MEV Page 4 Question 3 – 10 marks Part A Explain your answers to following questions. (a) In 201 4, the exchange rate was over 90 US cents per Australian dollar . With new information today , traders exp ect the exchange rate to fall to 75 US cents per Australian dollar in 2015 . Explain how the revised expected future exchange rate will influence the demand for Australian dollars and the supply of Australian dollars in the foreign exchange market. Why ? (1 mark) (b) In October 201 2, the exchange rate was 103 US cents per 100 Japanese yen . As a result of Abenomics since late 2012, the exchange rate fell to 8 2 US cents per 100 Japanese yen by March 2015 . Draw a graph and explain w hat would have happen ed to the quantity of yen and the Japanese exchange rate ? Would people plan to buy or sell Japanese yen in the foreign exchange market? (2 mark s) In March 2015, Australian dollar is trading at US$0.77 per Australian dollar and t he interest rate in Australia is currently 2.25 per cent a year . It is forecast that the US will increase its interest rate some time later this year . (c) If the interest rate in the U S increases to 3 per cent a year , how is it likely to affect the flow of funds between Australia and the United States and the exchange rate of US dollar against Australian dollar (depreciation or appreciation) ? What is likely to hap pen to the current account balance of the United States ? (3 mark s) Part B The table gives some information about the US international transactions in 2014. (d) Explain and calculate the current account balance. (1 mark) (e) Explain and calculate the capital account balance. (1 mark) (f) Did the US official reserves increase or decrease? Explain (1 mark) (g) Was the US a net borrower or a net lender in this year ? Explain your answer. (1 mark) Item Billions of U.S. dollars Imports of goods and services 3,551 Foreign investment in the U S 987 Exports of goods and services 2,874 U.S. investment abroad 305 Net interest income 131 Net transfers −82 Statistical discrepancy 23