ECO121 Macroeconomics

Class:
Term: Spring 2020
Handed out:
Submission due:
Format: .pdf file
Submission mode: Hardcopy and Softcopy
Email to: tamnt2@fsb.edu.vn
tamnt@fpt.edu.vn

Student Information
Name: ĐỖ THU TRÀ Roll number: HS140480
Room No: Class: Ba1405

FOR TEACHER ONLY

MARK MARKED BY Signature of Proctor
(NAME AND SIGNATURE)

Assignment 2
Question1:

Assume that in the Economy only two goods are produced: Pencils and Erasers.
Macroeconomics information for this economy is given in the below
a. What is the value of Nominal GDP in 2011 and 2012? What is the percentage increase?
b. What is the value of Real GDP in 2011 and 2012, by considering 2011 as the base year?
What is the percentage increase?
c. What is the value of the GDP deflator in the two years? By what percentage does the price
level
change from the base year to 2012?
d. Was the increase in Nominal GDP due more to an increase in prices or in the volume of
output?
e. What was the growth rate of average labour productivity for the whole economy between
2011 and 2012?

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 2011 2012

Output (Pencils) 100 110

Output (Erasers) 200 220
Employment (Pencils) 500 600
Employment (Erasers) 500 500
Price per Pencil $1.00 $1.50
Price per Eraser $1.00 $1.10

Question 2:

Identify and discuss factors that affect both Net Export and Net Capital Outflow

Question1:

Assume that in the Economy only two goods are produced: Pencils and Erasers.
Macroeconomics information for this economy is given in the below

a. What is the value of Nominal GDP in 2011 and 2012? What is the percentage
increase?

Nominal GDP in 2011=100*$1.00+200*$1.00=$300.

Nominal GDP in 2012=110*$1.50+220*$1.10=$407.
Percentage increase= (($407-$300)/$300) *100%=35.6%
b. What is the value of Real GDP in 2011 and 2012, by considering 2011 as the base
year? What is the percentage increase?

Real GDP in 2011=$300.

Real GDP in 2012=110*$1.00+220*$1.00=$330.
Percentage increase= (($330-$300)/$300)*100%=10%
c. What is the value of the GDP deflator in the two years? By what percentage does the
price level
change from the base year to 2012?
GDP Deflator in 2011= ($300/$300)*100=100
GDP Deflator in 2012= ($407/$330)*100=123.3.

d. Was the increase in Nominal GDP due more to an increase in prices or in the volume
of output?
Increasing in Nominal GDP due more to an increase in prices because Nominal GDP
values output using current prices.
e. What was the growth rate of average labour productivity for the whole economy
between 2011 and 2012?

Productivity in 2011= $300/1000=0.3

Productivity in 2012=$330/1100=0.3

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 The growth rate of average labor productivity for the whole economy between 2011
and 2012 is 0%.

2011 2012

Output (Pencils) 100 110

Output (Erasers) 200 220
Employment (Pencils) 500 600
Employment (Erasers) 500 500
Price per Pencil $1.00 $1.50
Price per Eraser $1.00 $1.10

Question 2:

Net capital outflow (NCO) is the net flow of funds being invested abroad by a country
during a certain period of time (usually a year). A positive NCO means that the country
invests outside more than the world invests in it. NCO is one of two major ways of
characterizing the nature of a country's financial and economic interaction with the other
parts of the world (the other being the balance of trade).
NCO is linked to the market for loanable funds and the international foreign exchange
market. This relationship is often summarized by graphing the NCO curve with the quantity
of country A's currency in the x-axis and the country's domestic real interest rate in the y-
axis. The NCO curve gets a negative slope because an increased interest rate domestically
means an incentive for savers to save more at home and less abroad.
NCO also represents the quantity of country A's currency available on the foreign exchange
market, and as such can be viewed as the supply-half that determines the real exchange rate,
the demand-half being demand for A's currency in the foreign exchange market. As can be
seen in the graph, NCO serves as the perfectly inelastic supply curve for this market. Thus,
changes in the demand for A's currency (e.g. change from an increase in foreign demand for
products made in country A) only cause changes in the exchange rate and not in the net
amount of A's currency available for exchange.
By an accounting identity, Country A's NCO is always equal to A's Net Exports, because the
value of net exports is equal to the amount of capital spent abroad (i.e. outflow) for goods
that are imported in A. It is also equal to the net amount of A's currency traded in the foreign
exchange market over that time period. The value of exports (bananas, ice cream, clothing)
produced in country A is always matched by the value of reciprocal payments of some asset
(cash, stocks, real estate) made by buyers in other countries to the producers in country A.
This value is also equal to the total amount of A's currency traded in the foreign exchange
market over that year, because essentially the buyers in other countries trade in their assets
(e.g. foreign currency) to convert to equivalent amount in A's currency, and use this amount
to pay for A's export products.
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Example, The Covid-19 outbreak in China since the end of January 2020 has greatly affected
Vietnam's commercial activities. Import and export of Vietnam's goods in the short-term is
forecasted to face many difficulties with adverse factors due to the development of the
disease situation which is showing a strong spread outside China, especially in Korea and
Japan - Vietnam's leading trading partners. In the event of a prolonged epidemic, it could
negatively affect the export growth target of the whole 2020. Vietnam's agricultural exports
through border gates in the northern border provinces in February 2020 were interrupted.
China's suspension of cross-border trade in border residents to cope with the Covid-19
epidemic.

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