Macroeconomics: Chapter one revision
1. What is macroeconomics?
•
Define what macroeconomics is about.
•
List macroeconomic objectives.
a.
b.
c.
d.
e.
2. Economic growth and low unemployment
•
Define economic growth.
•
Write down the formula for economic growth.
•
Define per capita GDP.
•
Write the formula for per capita economic growth.
•
The finance minister of Lalaland estimated that the value of real GDP was R10200 million
in 2012 (the reference base year for Lalaland), and the value of real GDP was R16120
million in 2021. The finance minister would like to know the economic growth rate for
Lalaland between 2012 and 2021. This would help the minister put his real GDP estimates
into perspective. The minister approaches you for assistance since you are one of the
excellent students he knows. Use your economic knowledge and determine the rate of
growth for the minister.
•
The finance minister of Lalaland is concerned about whether the growth rate you
estimated above improved the living standards of the Lalaland citizens. The size of the
population of Lalaland was 500 million in 2012 and increased to 750 million in 2021. Use
this information and the above real GDP estimates to determine per capita GDP in 2012
and 2021 in Lalaland.
•
Calculate the per capita rate of growth for Lalaland.
•
The finance minister of Lalaland is due to present his annual budget speech in the Lalaland
national assembly. He would like to highlight the extent to which the growth rate you
estimated expanded employment opportunities. By now, he trusts your dope economic
skills and further asks you for assistance. You conducted research and found that
Lalaland's employment coefficient was 0,62 between 2012 and 2021.
a. Based on the employment coefficient above, was the link between economic growth
and employment negative/positive in Lalaland between 2012 and 2021?
b. Interpret the employment coefficient for the minister.
3. Stable and low inflation.
•
After the excellent work you did for the finance minister of Lalaland, you are hired as a
junior economic advisor for the presidency of Tika Land. Your first project is to determine
the cost of living for Tika Land between the years 2010 and 2020. The following
information on the Tika Land consumer price index (CPI) is available publicly.
Year
CPI (2016=100)
2020
117.3
2019
113.8
2018
109.4
2017
104.7
2016
100.0
2015
93.7
2014
89.0
2013
84.5
2012
80.2
2011
75.9
2010
71.5
•
Use the above information to determine the cost of living for Tika Land.
a. Define inflation.
b. Write down the formula for inflation.
c. Calculate the rate of inflation for 2011.
d. Calculate the rate of inflation for 2015.
e. Calculate the rate of inflation for 2020.
f.
List out possible effects of the inflation rates you calculated above.
4. Distribution of income and equity
•
In Azania in 2015, the Gini-coefficient was 0,65, and the Palma ratio was 7.9.
4.1 Briefly describe what the Gini coefficient is.
4.2. Briefly describe what the Palma ratio is.
4.3 Discuss the Gini-coefficient and Palma estimates of Azania above.
5. Trade-offs in macroeconomic objectives.
•
Your outstanding work with Lalaland, Tika Land, and Azania has earned you an honourable
name as a young economist. The International Monetary Fund now hires you as a senior
economic advisor on economic growth and development. Your first task as a senior officer
is to determine if there are potential trade-offs or complementariness between
macroeconomic objectives you wish to pursue. To archive, this, fill out the table below.
Use the lower diagonal to state whether conflict or complementariness exists between
objectives. Write either complement/substitutes/none. Use the upper diagonal to
describe the type of conflict/complementariness that you identified in the lower diagonal.
Objective
Economic growth and low
unemployment
Stability of output and
employment
Stable and low inflation
Balance
of
payments
equilibrium in the long run
Distribution of income and
equity.
Economic
development
and poverty reduction
Economic growth and low
unemployment
Stability of output and
employment
Stable and low
inflation
Balance of payments
equilibrium in the
long run
Distribution
of
income and equity.
Economic development
and poverty reduction