ANSWER 1:

Genuine Progress Indicator (GPI) can be considered an adequate measure of standard of living
especially for an economy like Vanatu. We are assuming the economy of Vanatu to be like the
economy of other Pacific island economies. Meaning mostly agrarian economy lacking
sophisticated means of productions and lack of service. Also as with most
developing/underdeveloped economies In such economies due to lack of a large enough
service industry the people are more prone to do the most of household work themselves. Also,
such an economy is vastly dependant on natural resources mainly logging and in some cases
mining.

GPI takes into account not only economic but also social and environmental factors1. Among the
economic factor along with production, it also looks at cost of underemployment and income
inequality. For an economy like Vanatu we can expect the income inequality and
underemployment to be low. Also GPI takes the the total production of goods and services in
the economy. This means all agricultural produce, fishing, tourism is taken into account.

On the social side, GPI considers the value of housework, volunteer work, education, and
communication. Vanatu being an underdeveloped economy can be assumed to rely heavily on
house and volunteer work due to the lack of a developed service industry. So ignoring these
statistics will severely skew how the standard of living is assessed.Also, we can assume
education and communication to be lacking.

For an economy such as Vanatu’s cost of pollution, deforestation should be low but depending
on the stage of development it could be higher. For example if Vanatu is going through a rapid
stage of urbanization and industrialization we can expect pollution to be high because of the
people’s lack of familiarity with technology and waste management and mitigation.

We can see that GPI is an well-rounded and sophisticated approach to assessing the standard
of living. Although we can not say that GPI is the best at assessing the standard of living, it is
much better than most other statistics.

ANSWER 2:
A cut on corporation tax will shift the demand curve upwards. Resulting in the new equilibrium
between aggregate demand and output.

In a Keynesian cross, we observe the relationship between aggregate demand and national
output/GDP/Income. The horizontal axis represents the level of output/GDP/Income. The
vertical axis represents the aggregate demand. The 45-degree line originating from coordinate
(0,0) represents the equilibrium level demand or income or output 2. In a perfectly functioning
economy, the GDP shall always be on the 45-degree line.

A cut on corporation tax will leave companies with more money on their accounts. The
companies will have more retained income. More retained income means an increase in
employment level, increase in wages, and capital investments.

We know that aggregate demand is the sum of consumption and investments. If income level
rises, so does incomes components consumption and savings. We can assume that under
optimal conditions meaning no leakage occurs, any savings made by individuals will be
borrowed by corporations through financial institutes and become investments. So the savings
by individuals will be put back into the flow of money. Also as the corporations will invest more
in production due to increased retained income. The total investment shall be greater than
before because of individual savings turned loanable funds and investments by the
corporations. Also as the employment level rises the demand shall also increase as more
employed people mean that more income is used toward consumption and savings.

So the aggregate demand for the whole economy will increase as both consumption and
investment will increase. So the demand curve will shift up from the previous position. Because
of increased demand, the output will increase as in the output will move along the 45-degree
line. The new equilibrium point will be the intersection point between the new aggregate
demand curve and the 45-degree line. The economy of Australia is most likely to grow due to
the tax cut.
ANSWER 3:

Impact of Tariffs can be wide and far reaching. It can affect internal economy of the country.
Also, for an economy such as USA’s any such tariffs will have widespread consequences.

Let us first look at effects on internal industries. If a tariff is imposed on imports than internally
produced goods will become more competitive in the market. The cause of this is that due to
tariffs the price of imported goods shall rise and compared to that internally produced goods will
be cheaper or internally produced goods can be sold at a higher price and profit. This will result
in growth in whatever industry the tariffs are introduced in. Such actions have been taken by
USA before. US congress as one of its first acts, imposed tariff on textiles imported from
europe. This is one of the oldest example of the infant industry argument 3. Where the
government protects a burgeoning industry from international competitions.

Also, imposing tariffs will raise revenue for the government. Which can increase government
expenditure, resulting in greater aggregate demand in the long run. Supply will rise to meet
demand the economy of the country will grow.

If the tariff is imposed on intermediate goods or raw materials, US produced raw material or
intermediate goods may not be able meet domestic demand then the final goods produced in
USA will have a higher cost of production. That will make US produced goods less competitive
in the global market.

There is also the possibility of the other partners of trade retaliating in response by imposing
tariffs on american goods. This will impact american exports. Decreasing exports means a
decreasing GDP. It will also take time for the international trade and economy to stabilize. Any
such global trade war will destabilize the world economy.

Any tariffs imposed by USA on any goods on any country has far reaching consequences. As
the sole global superpower after the end of cold war, any economic movement made by USA
impacts the global politics and economy.
References:
1. Talberth, John, Clifford Cobb, and Noah Slattery. "The genuine progress indicator 2006."
Oakland, CA: Redefining Progress26 (2007).
2. Fusfeld, Daniel R. "Keynes and the Keynesian cross: a note." History of Political Economy 17.3
(1985): 385-389.
3. "The World's Oldest Infant Industry - The Rushford Report."
http://www.rushfordreport.com/2003/6_2003_Yankee_trader.htm. Accessed 25 Jul. 2018.