Macro-Economics

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THE COUNCIL OF COMMUNITY COLLEGES OF JAMAICA

FINAL ASSESSMENT

SEMESTER II – 2021 MAY

PROGRAMME: BUSINESS ADMINISTRATION

COURSE NAME: MACROECONOMICS

CODE : ECON3701

YEAR GROUP: THREE

DATE ADMINISTERED: MONDAY, 2021 MAY 3

DURATION: 24 HOURS

This Assessment paper has 4 pages

INSTRUCTIONS:

1. THERE ARE THREE (3) QUESTIONS IN SECTION B. ANSWER ALL

QUESTIONS IN THIS SECTION

2. GIVE CREDIT TO ANY SOURCE USED TO COMPLETE THIS ASSESSMENT.

THE APA REFERENCING FORMAT MUST BE USED.

3. TURNITIN REPORT MUST BE SUBMITTED WITH THIS ASSIGNMENT

4. SUBMIT THE SIGNED CCCJ ASSIGNMENT COVERSHEET WITH YOUR

ASSIGNMENT

NOTE: YOUR ASSIGNMENT WILL NOT BE ACCEPTED IF 3. AND 4. ABOVE ARE

NOT SUBMITTED

YOUR COMPLETED WORK MUST BE SUBMITTED WITHIN THE SPECIFIED

DURATION OUTLINED ABOVE TO PREVENT PENALTIES

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SECTION B

Instruction: Complete ALL questions from this section.

Question 1

The balance of payments of a country summarises the economic transactions of an economy with

the rest of the world. Covidland released the following figures from its balance of payments

accounts. In 2019 the country seemed to be doing well in terms of gains from trade.

Balance of Payment data for Covidland 2019

Merchandise Export 80

Merchandise Import 60

Services Exports 30

Services Imports 20

Investment income 10

Net transfer 20

Capital Inflows 20

Capital Outflows 80

Official Reserves 20

A. Use the information in the table above to calculate the following for Covidland i. The balance of trade (1 mark) ii. The current account balance (2 marks) iii. The capital account balance (2 marks)

B. Discuss THREE (3) factors that can cause a current account surplus on the balance of payment account. (6 marks)

C. In 2020, COVID-19 wreaked havoc on the economies of small countries of Covidland. It had devastating consequences on the countries balance of payments. Propose THREE (3)

measures that can be implemented by Covidland to correct a current account deficit.

(9 marks)

(Total 20 marks)

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Question 2

GDP DATA- GOOD OR BAD

GDP measures the output of goods and services produced by labor and property in a country

during a given time. GDP has become the metric economists and policymakers primarily look to

for analyzing the health of our economy and setting economic policy. However, GDP is a

measure of raw economic activity, not a complete picture of economic progress.

The calculation which can be done using different methods, gives the monetary value of all the

goods and services purchased within national borders by persons, businesses, governments and

foreigners. As a raw data analysis, GDP gives a good broad overview of the market economic

activity that takes place within a country, however, because it does not differentiate between

types of spending, and because it does not recognize non-market forms of production and values

without market prices, GDP does not provide a complete picture of economic and societal

progress.

For example, one of the methods of determining GDP counts just broad categories of

consumption, investment, and government spending. It cannot distinguish between “good” and

“bad” spending. If government spending increases due to responding to a natural disaster, or if it

increases due to a substantial infrastructure expansion program, there is no distinction in GDP

accounting. Yet, the infrastructure program is clearly better for our overall economy and society.

Likewise, if personal consumption increases, GDP counts that as a positive sign, even if the

personal consumption is financed by credit cards or other means that put households in debt.

Despite it being a broad measure, there are several things that GDP does not measure that are

essential for both the economy and society. Most glaringly, GDP does not capture the

distribution of growth and, as a result, cannot reflect inequality. GDP also does not capture the

value added by volunteer work and does not capture the value of caring for one’s own children.

For example, if a family hires someone for childcare, that counts in GDP accounting. If a parent

stays home to care for their child, however, the value is not counted in GDP. In addition, the

enormous value of the country’s natural capital and ecosystems is also not reflected in GDP.

Preserving the country’s natural resources—essential to our current and future wealth—is not

counted but exploiting them in an unsustainable manner is. only when natural resources are sold

or somehow commoditized do they show up in GDP calculations.

Required

A. Explain the term GDP. (2 marks)

B. Assess the evidence presented in the case and discuss the TWO (2) uses and TWO (2) limitations of using GDP data to measure the well- being of a nation. (8 marks)

C. One of the methods used to calculate GDP is highlighted in the case. i. Name the method (1 mark) ii. Explain using examples THREE (3) elements that are important when using this

method to calculate GDP (6 marks)

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D. A country’s real GDP is substantially higher today than it was 60 years ago. What does this tell us about the well-being of that country’s residents? (3 marks)

(Total 20 marks)

Question 3

Bank of Jamaica’s monetary policy objective is to achieve and maintain inflation within the

target of 4.0 per cent to 6.0 per cent. Several tools can be used to achieve inflation within the

target is through the bank’s policy interest rate.

A. Identify TWO (2) types of monetary policy tools that can be used by the Bank of Jamaica to achieve its monetary policy objectives. (10 marks)

B. Why is it important to control the supply of money in the economy? (4 marks)

C. Describe TWO (2) motives that influence the demand for money? (6 marks)

(Total 20 marks)

END OF ASSESSMENT