Question description
1.
Answer the
following questions:
a)
Write down the
national account identify for a closed economy. Then, show the identity between
national savings (i.e. the sum of private savings and government savings) and
investment. You must show all of the steps. (2 marks)
b) Write down the national
account identity for an open economy. Again, show the identity between
national savings (i.e. the sum of private savings and government savings) and
investment. Show all of your steps. (2
marks)
c)
Based on the
saving and investment relationship in the closed economy in Part a), explain
how an increase in government purchases (G) can affect growth in output per
worker. We assume that the taxes that the government collects remain unchanged.
(2 marks)
1.
Analyse the effects of the following
events in the
loanable fund market diagram where we have (real) interest rate (r) on the
vertical axis and the quantity of loanable fund (Q) on the horizontal axis. Please
ensure to explain what happens to private saving, private investment spending,
and (real) interest rate, and demonstrate it changing a figure below.
a)
An increase in government
purchases (2 marks).
Answer here (Tips: to create new lines, simply copy
the existing curves and move to the new location)
a)
Australian
business becomes very optimistic about the future course of the economy and
this increases the prospect of their profitability at any given (real) interest
rate. Assume the government budget balance is zero. (2 marks)
1. The level of government debt is a growing
concern for the current Australian Treasurer who has the responsibility of
managing the government budget. Summarise the key arguments on the debate around
Australian government deficit. Your summary must address the following;
·What is the major concern of running government
deficits?
·What is the economic reasoning to have a balanced
budget? and
·When might a budget deficit/surplus be OK?
Conclude by briefly discussing what policies you would suggest to the
Treasurer in order to balance the budget and why. The summary should be at
least half a page in length (3
marks).
Need assignment by 4pm Australian EST 22nd of April.
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Solution:
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