Economics Assignment Addressing Cases With Economics Concepts
Task: Compare and contrast GDP versus GNP. Provide an example of each.
a) Based on the data provided, calculate GDP according to the Expenditure Model. (5marks)
Discuss Expansionary Fiscal Policy. Who is responsible for implementing fiscal policy? What may be adjusted to implement the policy? According to studies, fiscal policy can be slow to react to economic situations. Identify and discuss one reason why this may occur.
With footware sales of USD 28 Billion in the fiscal year ended 31 May 2021, Nike is still No. 1 in the sneakers market. Identify the market structure where Nike operates. Discuss at least 2 features of that market structure.
Choose a product/service. Describe the elasticity of supply for your product/service. Identify one factor that influences the elasticity of supply for that product/service. Discuss the what happens to elasticity of supply if you vary that factor.
A) Inferior good
B) Intermediate good
C) Substitute good
D) Luxury good
Microeconomics is the analysis of the change in the response of the individuals due to change in the price, incentive, income, production method or resource of production. On the other hand, macroeconomics analyses the overall economic situation that tends to change due to change in output, employment, inflation, exchange rate, interest and various other macroeconomic factors (Kaplan and Violane 2018, p167(2)). Considering the given situation in Part A, they fall under microeconomics as they discuss about the change in individual person or firm's preference due to change in various factors like income, incentive and production resource.
When the economic growth rate is too high, and the inflation increases at a high rate with advancing price, then the central bank takes policies to slow down the overheated economic growth. In order to implement a tight monetary policy, generally,the interest rate is increased. With the increased interest rate, there will be reduced investment, a fall in housing prices, reduced consumption and appreciation in the exchange rate (Obstfeld and Duval 2018). This will lead to lower economic growth and lower inflation. Thus, the objective of the tight monetary policy is to control the growth of the overheated economic growth, known as tight monetary policy. To control the policy, the interest rate is increased, or money printing is lowered, reducing the money supply in the market. Also, through increasing the reserve ratio, bank limits the fund available for loans keeping the borrowing low (Martinez and Repullo 2019, p810(2)).
Tight monetary policy is necessary to implement when the economy is facing a very high growth rate. Besides, if the inflation is too high with the increasing price, tight monetary policy needs to be implemented.
The Reserve Bank of Australia oversees the monetary policy in Australia.
a.GDP or the Gross Domestic Product measures the market value of all goods and services produced in a financial year. On the other hand, GNP or the Gross National Product is the value of all goods and services produced by domestic and non-residential individuals in a foreign country (Bristy and Bose 2017, p155(1)).
Hence, GDP is the value of final goods and services produced in the domestic market only. In contrast, GNP is a measure of the importance of all goods and services produced in the domestic market as well as the foreign market through the non-residential individuals of a country (Aitken 2019, p4(2)). Thus, GNP is a right estimate of national income compared to GDP.
Expansionary fiscal policy is a government policy to influence the state's economic performance through changing the governmental tools. As the tools of government, in the case of the expansionary fiscal policy, governmental spending, tax reduction or a combination of both is considered. By implementing the strategies, the government tries to enhance the economy's consumption through the increase in the demand in the market. Hence, the government is responsible for implementing the fiscal policy (Hsing 2019, p5(2)).
The government adjusts public spending and tax revenue by reducing the tax rate to adjust the fiscal policy.
One of the main motives of the fiscal policy is to increase the market operation by influencing the demand of the market. However, through the expansion of public spending and reduction of the tax rate as the government tries to increase job creation and enhance disposable income, it takes time to influence the demand (Hsing 2019, p6(3)). Besides, as the multiplier effect takes time to operate, expansionary fiscal policy is slow to react to the economic situation.
Nike operates in the oligopoly market structure.
Features of oligopoly market structure are as follows (Chen et al. 2020, p283(3)):
1. It has a small number of sellers and large number of buyers
2. Market has high entry barriers
3. Firms in the oligopoly market are interdependent with each other
The chosen product case of the car is considered.
The elasticity of a car is elastic in nature. As there is an increase in the price supply of the cars increase noticeably and vis-à-vis. Thus, car being a luxury good, consumer prefer to save money than using it to purchase car in case ofprice increase. Hence, car supply is elastic in nature (Liu et al. 2017, p3(3)).
One factor that influence the elasticity of the supply of the car is: Number of producers available in the market.
If the number of producers increases in the market, there will be more alternatives available in the market. With the higher availability of the alternative, people can easily switch from one brand to another brand, and the resource cost will eventually rise (Liu et al., 2017, 145(3)). With the rise in the cost of production, a rise in price will make the supply inelastic.
A Aitken (2019), Measuring welfare beyond GDP, National Institute economic review, 249, pp.R3-R16. https://journals.sagepub.com/doi/pdf/10.1177/002795011924900110
D Martinez-Miera and R Repullo (2019), Monetary policy, macroprudential policy, and financial stability, Annual Review of Economics, 11, pp.809-832. https://www.econstor.eu/bitstream/10419/208331/1/167017879X.pdf
G Kaplan and GL Violante (2018), Microeconomic heterogeneity and macroeconomic shocks, Journal of Economic Perspectives, 32(3), pp.167-94. https://scholar.google.com/scholar?output=instlink&q=info:gjnuFELLxjoJ:scholar.google.com/&hl=en&as_sdt=0,5&as_ylo=2017&scillfp=4167926818542713923&oi=lle JF Bristy and TK Bose (2017), GDP-GNP Gap Trade-Off: Is it Significant for Economic Performance?, Economics assignmentReview of World Economies Having Different Gaps. https://www.researchgate.net/profile/Jannatul-Bristy/publication/314484207_GDP-GNP_Gap_Trade-Off-is_it_Significant_for_Economic_Performance_Review_of_World_Economies_Having_Both_Gaps/links/5d09b0f7a6fdcc35c1592fa7/GDP-GNP-Gap-Trade-Off-is-it-Significant-for-Economic-Performance-Review-of-World-Economies-Having-Both-Gaps.pdf
M Obstfeld and R Duval (2018), Tight monetary policy is not the answer to weak productivity growth, VoxEU, January, 10, p.2018. https://voxeu.org/article/tight-monetary-policy-not-answer-weak-productivity-growth
XM LIU, JD YAN and QW LI (2017), A Study of Auto Parts Industry Absorbing Funds from Venture Capital, DEStech Transactions on Economics, Business and Management, (eced).https://www.dpi-proceedings.com/index.php/dtem/article/download/9846/9400
Y Chen, C Lawell and Y Wang (2020), The Chinese automobile industry and government policy, Research in Transportation Economics, 84, p.100849. http://www.des.ucdavis.edu/faculty/lin/China_auto_mkt_JTRF_paper.pdf
Y Hsing (2019), Is Expansionary Fiscal and Monetary Policy Effective in Australia?, The Journal of Business Economics and Environmental Studies, 9(3), pp.5-9. https://www.koreascience.or.kr/article/JAKO201915658233918.pdf