Microeconomic assignment

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HIGHERCOLLEGE OF TECHNOLOGY

DEPARTMENT: BUSINESS STUDIES

Final Examination:

Assignment Based Assessment Semester: II A. Y.: 2019 / 2020

Diploma I and II Year

Start Date: 29-05-2020 Time: 2.00 PM

Due Date: 31-05-2020 Time: 2.00 PM

Student Name

Student ID

Specialization

Section

Level

Course Name Principles of Macroeconomics

Course Code BAEC2204

For official Use Only

Question No. Max. Marks Obtained

Marks

Question No. Max.

Marks Obtained

Marks

1 5 1 5

2 5 2 5

3 5 3 5

4 5 4 5

5 5 5 5

6 5 6 5

7 5 7 5

8 5 8 5

9 5 9 5

10 5 10 5

Grand Total

Marks 50 50

First Marker: Second Marker:

Date: Date:

Guidelines for Students to Submit the Assignment:

1) The final assessment for semester 2, 2019-20 will be done through comprehensive

assignment for a maximum of 50 marks. The schedule of the final assessment is

available in the college website. https://www.hct.edu.om/about/the-

college/announcements/final-assessment-timetable-041620

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students have more than one assignment on the same day, please report to the exam

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which will be announced through the college website or e-learning portal within three

days from the date of submission deadline.

SECTION A

Important: - Each answer should have minimum 100 words, if data or table used to

support your answer, must give proper reference

Only upload answer with question number in MS word, please don’t copy any question,

case, instruction or any other information

Read the article and answer the question based on it:

Macroeconomics studies how money affects the society on a large scale. It involves the study

of how money is created, borrowed, invested and spent. While microeconomics deals with

economic issues on a personal or business-level, macroeconomics looks at the larger issues of

how all people, businesses and government interact financially. It looks at such issues as

aggregate supply and demand.

Macroeconomics deals with the budgets of governments. For the most part, a government

should not be running at too high of a budget surplus, as that could indicate that citizens are

being overtaxed. However, when a government runs a budget deficit, it must find ways to

finance that deficit. That additional expense must be passed on to taxpayers. Often budget

deficits are financed with debt. Governmental debt is often the way that budget deficits are

financed. Debt typically takes the form of bonds and other securities. Economists monitor the

ratio of a country's' debt to the gross domestic product. When debt becomes too great a

percentage of the GDP, interest payments increase and the money government spend is

diverted to debt financing rather than other options.

Trade policies are an important issue in the study of macroeconomics. Trade agreements

dictate what type of freedoms or restrictions governments place on economic trade between

countries. Trade policies include the levying of tariffs, currency exchange and quotas.

Employment is a large macroeconomics category that includes everything from

unemployment figures to productivity.

What causes the value of money to decrease and people do not have as much purchasing

power as they did before. Governments will often try to control this decreased value of

money by lowering interest rates. When it is cheaper for businesses to borrow money, their

costs decrease, allowing them to sell things at a lower price.

Source: https://www.investopedia.com/

1. Based on the above article state the injections and leakages in the Omani economy and also explain (with reasons) how it is moving the economic cycle.

[2 + 3 = 5 Marks]

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SECTION B

Important: - Each answer should have minimum 100 words, if data or table used to

support your answer, must give proper reference

Read the article and answer the question based on it:

Macroeconomics seeks to find a general perspective, at a national level, while

microeconomics focuses on the individual’s perspective, at a consumer level.

Even though supply and demand applies to both fields of economics, microeconomics is

based on the trends of buyers and sellers, where macroeconomics focuses on the various

cycles of an economy, such as short and long term debt cycle, and business cycles.

Macroeconomics analyses entire industries and economies, rather than singular companies or

individuals. It seeks to answer questions such as, “What should the inflation rate be?” and,

“What stimulates economic growth?”

It is clear that macroeconomics does not exist in isolation, but rather is entwined with

microeconomics, and works in tandem in order to be efficient. Choices based on

microeconomic factors, whether from individuals or businesses, can impact macroeconomics

in the long run. Similarly, a national policy that involves microeconomics could affect how

households and enterprises interact with their economy. For example, if the government

raises the tax on a certain product (macroeconomics), an individual shop owner will have to

increase the price, which will impact on the consumer and their decision for or against the

product at that price (microeconomics).

Source:-https://www.getsmarter.com/blog/career-advice/microeconomics-and-

macroeconomics-understanding-the-difference/

2. Microeconomics and macroeconomics both explore the same elements, but from different points of view, explain. Also discuss how macroeconomics and

microeconomics affect each other. [02 + 03 = 05 Marks]

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SECTION C

Read the following information carefully and answer the question.

The population of Oman in 2019 was 4,618,268. The Labour force participation rate in the

same year is 72.4%. The total number of employed persons in Oman is 2,266,440.

3. State the average unemployment rate in Oman from 2009 to 2019? What is the Labour Force of Oman in 2019? Also find out the Employment Rate in Oman in 2019.

Do the calculation to show how you have reached the conclusion.

[1 + 2 + 2 = 5 Marks]

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SECTION D

Important: - Each answer should have minimum 100 words, if data or table used to

support your answer, must give proper reference

Read the following article carefully and answer the question.

Oman’s economy is expected to contract in 2020 due to the oil price slide and the COVID-19

public health response. An increase in gas output and infrastructure spending plans will help

growth recover over 2021-22. Fiscal and external deficits will remain under strain due to low

oil and gas prices. Rigid recurrent spending will keep public debt high, estimated to exceed

70% of GDP in 2020 and beyond. Real GDP growth is estimated to have decelerated to

0.5% in 2019, down from a recovery of 1.8% in 2018. This is largely driven by 1% (y/y)

decline in oil production, capped by the since-lapsed OPEC+ production deal. The non-oil

economy is estimated to have been subdued due to the slowdown in industrial activities and

services sector. Inflationary pressures are estimated to remain muted at 0.1% in 2019,

reflecting weak domestic demand and tame food and housing prices.

Key downside risks are reflected in further erosion of the fiscal balance, through far lower oil

prices, exposure to China, and economic disruption to tourism due to COVID-19.

Source:-https://www.worldbank.org/en/country/gcc/publication/oman-economic-update-

april-2020

4. Find out the contribution of non-oil sectors to GDP of Omani economy and how will

it replace the falling from oil sector. Kindly put reference for data source. [2 + 3 = 5

Marks]

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SECTION E

Important: - Each answer should have minimum 100 words, if data or table used to

support your answer, must give proper reference

Read the following article carefully and answer the question.

Macroeconomic policy is concerned with the operation of the economy as a whole. In broad

terms, the goal of macroeconomic policy is to provide a stable economic environment that is

conducive to fostering strong and sustainable economic growth, on which the creation of

jobs, wealth and improved living standards depend.

Fiscal policy operates through changes in the level and composition of government spending,

the level and types of taxes levied and the level and form of government borrowing.

Governments can directly influence economic activity through recurrent and capital

expenditure, and indirectly, through the effects of spending, taxes and transfers on private

consumption, investment and net exports.

Under current institutional arrangements, fiscal policy is the only arm of macroeconomic

policy directly controlled by government.

Another example is the monetary policy that is the central bank's open market operations.

When there is a need to increase cash in the economy, the central bank will buy government

bonds (monetary expansion). These securities allow the central bank to inject the economy

with an immediate supply of cash. In turn, interest rates—the cost to borrow money—is

reduced because the demand for the bonds will increase their price and push the interest rate

down. In theory, more people and businesses will then buy and invest. Demand for goods and

services will rise and, as a result, the output will increase. To cope with increased levels of

production, unemployment levels should fall and wages should rise.

Because changes in exchange rates have macroeconomic effects on a nation’s economy,

nations also need to think about what exchange rate policy they should adopt.

Source: https://opentextbc.ca/principlesofeconomics/chapter/29-3-macroeconomic-effects-of-

exchange-rates/

https://opentextbc.ca/principlesofeconomics/chapter/29-3-macroeconomic-effects-of-exchange-rates/

5. Explain the Aggregate Demand in terms of its composition. Also state the

relationship between fiscal policy of the Government and its effects on increase in

the Aggregate Demand / Aggregate Supply of the economy. [02 + 03 = 05 Marks]

___________________________________________________________________________

SECTION F

Important: - Each answer should have minimum 100 words, if data or table used to

support your answer, must give proper reference

Read the information carefully and answer the question.

The Circular Flow model explains how a market economy works in a circular flow diagram.

A circular flow diagram is a visual model of the economy that illustrates how households and

businesses interact through markets for products and markets for resources.

Diagram: Circular flow of income in simple economy (Closed economy)

A simple economy assumes the existence of only two sectors, i.e. household sector and firm

sector.

A five-sector model shows a more complete version of the circular flow. When you look at

the circular flow model more closely, you will find that there are things that inject money into

the economy and other things that leak money out of the economy.

6. In the circular flow, which method of calculation of National Income will be placed and where? Justify your answer. [04 + 01 = 05 Marks]

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SECTION G

Important: - Each answer should have minimum 100 words, if data or table used to

support your answer, must give proper reference

Read the information carefully and answer the question.

The World Bank provides data on inflation for Oman from 2001 to 2018. The average value

for Oman during that period was 2.4 percent with a minimum of -0.8 percent in 2001 and a

maximum of 12.4 percent in 2008. The latest value from 2018 is 0.9 percent. For comparison,

the world average in 2018 based on 142 countries is 3.4 percent. See the global rankings for

that indicator or use the country comparator to compare trends over time.

Source: The World Bank

Inflation in Oman and other countries is usually calculated as the percent change in the

Consumer Price Index (CPI) from one year to the next. The CPI represents the prices paid by

the average urban consumer in each respective country.

7. Analyze the trends of inflation in Oman over the years and relate it to the components of aggregate demand and explain how it affects the rise and fall of inflation.

[1 + 2 + 2 = 5 Marks]

___________________________________________________________________________

SECTION H

Important: - Each answer should have minimum 100 words, if data or table used to

support your answer, must give proper reference

Read the following information carefully and answer the question.

The tourism sector has been targeted by the Oman government as one of the industries to be

included in the economic diversification plan.

Tourism not only creates jobs in the tertiary sector, it also encourages growth in the primary

and secondary sectors of industry. This is known as the multiplier effect which in its simplest

form is how many times money spent by a tourist circulates through a country's economy.

Money spent in a hotel helps to create jobs directly in the hotel, but it also creates jobs

indirectly elsewhere in the economy. The hotel, for example, has to buy food from local

farmers, who may spend some of this money on fertiliser or clothes. The demand for local

products increases as tourists often buy souvenirs, which increases secondary employment.

The multiplier effect continues until the money eventually 'leaks' from the economy through

imports - the purchase of goods from other countries.

Source: https://geographyfieldwork.com/TouristMultiplier.htm

https://geographyfieldwork.com/TouristMultiplier.htm

8. Find out the increased in investment in tourism by Oman for last four years and in relation to the contribution in the GDP. [02 + 03 = 05 Marks]

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SECTION I

9. If bakers buy wheat and sugar from agricultural producers, natural gas from gas companies and paper packets to pack bread from packaging companies as in the

following table, what is the value added of the bakery industry? If bakers also wholesale

some of their output to restaurants, is that output counted in GDP? Which methods are

used to calculate the GDP? Explain your answer. [02 + 02 + 01 = 05 Marks]

Costs (OMR) of:

Bakery Retail Sales Wheat and Sugar Natural Gas Paper Packages

10000 3500 1250 1500

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SECTION J

10. Consider a country with a fixed exchange rate that has a current account surplus of

OMR 20 million, but a capital account deficit of OMR 18 million.

(a) Is the country’s balance of payments in deficit or surplus? Why? [01 Mark]

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(b) What are the changes in official exchange reserves would you see? Why? [01 Mark]

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Account and capital Account? Explain with reasons [03 Mark]

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