Economics Assignment Examining Scenarios Based On Economic Concepts
The purpose of this economics assignment is to evaluate students’ ability to critically reflect on the economic perspectives of growth and wellbeing, macroeconomic cycles, globalisation, trade and development and to make policy recommen- dations to improve economic outcomes.
The thesis statement should be followed by a coherent and logically argued defense of the statement.
Your answer, application or critical reflection should include a thesis statement that answers or responds to the topic by giving your position, or stating your argument, clearly and concisely. The thesis statement tells the reader what to expect from the rest of your written work and should relate to the theory discussed in the lectures.
- Is the Gross Domestic Product (GDP) concept a good measure of welfare? Compare the welfare of any two countries using GDP per capital and the United Nation’s Human Development Index (HDI)
- Explain Keynes’ view on the stability of the market economy. How realistic is this assessment? Use the example of any three countries to highlight your answer.
- Explain the theory of comparative advantage. List the assumptions of this theory. How realistic are these assumptions? Your answer should assess any four (4) of these assumptions. Briefly explain the implications for international trade of your assessment of these assumptions?
You can get data from https://Unctad.org
Copy and paste the excel spread sheet and see what happens to the GDP Change with calculations and diagram. for any three countries. explain the change in both words and diagram. explain why both flunctuate. explain expected rate of interest
Question should be answered alongside a diagram to explain if needed
Economics Assignment Answer 1:
Gross Domestic Measure (GDP) is used to measure total output of a country for a particular nation. This measure does not indicate economic welfare but it is considered as a component of economic welfare (Goodwin et al. 2009). From macroeconomic concept, it can be said that GDP is used to measure the standard of living of a society in a rough way as it does not consider environmental quality, leisure, educational level, health conditions, income inequality and level of using technology etc. However, it can be said that GDP can indirectly define welfare of an economy. GDP increases when total production of goods and services increases and vice versa. A country producing higher amount of goods and services can achieve a higher standard of living of each people and this further indicates economic welfare.
Two compare the welfare, let assume two countries China and the USA. The per capita GDP of China for 2020 is USD 10500 while that of the USA was $63544 (Macrotrends2021). The Human Development Index of China was 0.761 points and rank weas 85. On the other side, HDI for the US was 0.926, and the rank was 17 by 2020 (Hdr.undp2021). Hence, it is seen that per capita income of the US was larger than China. Moreover, the HDI rank of the US was high compared to that of China. This situation is also seen for the US which has high per capita income and high rank in human development index. GDP per capita is a measure of human welfare. Hence, high GDP per capita leads the economy to achieve high rank in HDI index. GDP per capita is closely related with factors associated with welfare. It is positively associated with life expectancy and negatively associated with inequality and infant mortality.
According to Keynes, economies cannot stabilise themselves immediately and hence they need active intervention to stimulate short-term demand. According to them, wages and employment remain slow and cannot response to the market requirement and seek governmental intervention. As per him, free market mechanism is fundamentally unstable but can be achieved full employment at the presence of government intervention during depressions and recessions.
Keynes drew the statement after observing the misery of the Great Depression in 1930s. Keynes and his supporters agreed that the government needs to play an active role to manage economic activities. According to him, the government needs to emphasis on aggregate demand to achieve full employment. The assumption is applicable in present situation, where the government takes several fiscal and monetary policies accordingly to protect the market economy. For instance, the federal government in Australia adopts monetary policy to protect the economy from recession during the COVID-19 pandemic (Rba2021). The government forces to decrease the cash rate to 0.1% for managing low funding costs and supporting the economy. Moreover, the government also introduces JobKeeper and JobSeeker schemes so that people can earn money during pandemic and can fulfil their minimum demand in crisis period. Similarly, the UK government also took major role during financial crisis in 2007 (Cashfloat. 2015). The government took immediate steps to protect the entire financial system of the country from collapse. The US government also took critical measures in both 2007-08 crisis and the COVID-19 pandemic in 2020 to protect the economy. The government took required monetary and fiscal policies during these two times so that the overall economic performance did not collapse. The Federal Reserve declined its interest rate at the lower rate by December 2008 (Federalreservehistory 2021). Thus, it is seen that whenever capitalist country faced economic recession, the government took major roles for controlling the economy and to stabilise the market. Monetary policy and fiscal policy acts effectively to control the situation. Hence, from the discussion it is seen that an economy can be stabilised if the government takes active role.
The theory of comparative advantage is provided by Ricardo in the context of international trade. According to him, a country can achieve comparative advantage in producing specific good or service when it has lower opportunity cost than other countries with whom it trades (Krugman et al. 2008). Hence, comparative advantage allows a country to sell products at lower prices compared to competitors.
The theory of comparative advantage is based on certain assumptions, which are:
The theory considers only two countries, which trade with each other
Two countries use only one input in production and this is labour at a fixed proportion
Supply of labours in two countries cannot be changed and each labour unit is homogenous
Two countries produce only two commodities, for example X and Y
Two countries have similar tastes
Two countries have unchanged knowledge of technology
Production process follows constant return to scale
Two countries are at full employment level
Two countries do not have any trade restrictions
The theory considers only labour as the only factor of production by excluding other components, which are land, capital and entrepreneurs. Hence, the theory does not consider production costs related to these non-labour factors. Moreover, the theory considers all labours are homogenous which cannot be possible in reality. Due to different level of education, skills, knowledge and physical strengths, labours are always heterogenous. The model considers two country two commodity model which is not real as one country conducts international trade with many countries and produces more than two goods and services. Furthermore, a production system can follow either increasing or decreasing constant returns to scale. If a company’s costs decline at large scale production then it has increasing constant return to scale.
The following figure of comparative advantage is based on the above-mentioned assumptions:
Figure 1: Comparative Advantage Theory
Source: (Created by Author)
However, as the assumptions are considered as unrealistic, it will be difficult to draw the 2-dimensional curves and a straight line of production possibility frontier of each country.
Cashfloat. 2015. Government Measures in the Financial Crisis - Cashfloat, Cashfloat. Available at: https://www.cashfloat.co.uk/blog/money-borrowing/government-measures-crisis/ (Accessed: 20 October 2021).
Federalreservehistory 2021. The Great Recession | Federal Reserve History, Federalreservehistory.org. Available at: https://www.federalreservehistory.org/essays/great-recession-of-200709 (Accessed: 20 October 2021).
Goodwin, N., Nelson, J.A., Ackerman, F. & Weisskopf, T. 2009. Macroeconomics in Context. 2nd edn, M.E. Sharpe. Ch. 6.
Hdr.undp2021. Human Development Reports. Available at: http://hdr.undp.org/en/countries (Accessed: 19 October 2021).
Krugman, Paul and Wells, Robin, 2008. Economics, 2ndedition. Economics assignment Worth Publishers, New York, pp, 195-205.
Macrotrends2021. China GDP Per Capita 1960-2021. Available at: https://www.macrotrends.net/countries/CHN/china/gdp-per-capita (Accessed: 19 October 2021).
Macrotrends2021. U.S. GDP Per Capita 1960-2021. Available at: https://www.macrotrends.net/countries/USA/united-states/gdp-per-capita (Accessed: 19 October 2021).
Rba2021. Supporting the Economy and Financial System in Response to COVID-19. Available at: https://www.rba.gov.au/covid-19/ (Accessed: 20 October 2021).