ALLAMA IQBAL OPEN UNIVERSITY
ISLAMABAD
Level: BBA (4 Years)
Semester: Autumn, 2022
ASSIGNMENT No. 1
Q. 1 Define Gross Domestic Product. What are the other national accounts available to measure economic performance of a country?
Ans:
Gross Domestic Product (GDP) is a measure of the monetary
value of all final goods and services produced within a country's borders in a
specific period of time (usually a year). It is considered to be one of the
most important indicators of a country's economic performance.
Apart from GDP, there are several other national accounts
available to measure the economic performance of a country. Some of these
measures include:
Gross National Product (GNP): Similar to GDP, but takes into
account the income earned by a country's residents from investments and
employment abroad.
Gross National Income (GNI): A measure of a country's income
that includes all income earned by residents and businesses within a country's
borders, regardless of their location.
Net National Product (NNP): GDP minus the depreciation of a
country's capital goods (such as machinery, buildings, and infrastructure).
Net Domestic Product (NDP): GDP minus the depreciation of a
country's domestic capital goods.
National Wealth: A measure of the total value of a country's
assets, including natural resources, physical infrastructure, and financial
assets.
Human Development Index (HDI): A composite measure that
takes into account a country's GDP, life expectancy, and education levels to
measure its overall level of human development.
These measures are used to provide a more comprehensive
picture of a country's economic performance beyond just GDP.
Q. 2 If a country has an unemployment compensation program that provides income for those out of work, why should we worry about unemployment.
Ans:
While unemployment compensation programs can provide
financial support to those who are out of work, there are several reasons why
we should still be concerned about unemployment:
Social and Human Costs: Unemployment can have serious social
and human costs, including increased poverty, reduced quality of life, and
negative impacts on mental health and well-being.
Economic Costs: Unemployment can lead to lower economic
output and a reduction in overall economic growth. When people are unemployed,
they may have less money to spend, which can lead to reduced demand for goods
and services and slower economic growth.
Government Costs: Unemployment compensation programs can be
expensive for governments to fund. The cost of these programs is typically paid
for by taxpayers, which can place a burden on the government and the economy as
a whole.
Inequality: Unemployment can exacerbate economic inequality,
as those who are already disadvantaged or marginalized may have a harder time
finding work and may be more likely to rely on unemployment compensation
programs.
Overall, while unemployment compensation programs can
provide important support to those out of work, we should still be concerned
about unemployment because of its broader social, economic, and government
costs.
Ans:
To calculate the expected rate of return on the duplicating
machine investment, we can use the following formula:
Expected Rate of Return = (Expected Annual Revenue - Cost of
Investment) / Cost of Investment
In this case, the expected annual revenue is $550, and the
cost of investment is $500. Therefore, the expected rate of return is:
Expected Rate of Return = ($550 - $500) / $500 = 0.1 or 10%
The expected rate of return is 10%.
To determine whether the publisher should invest in the
machine, we need to compare the expected rate of return to the real interest
rate at which funds can be borrowed to purchase the machine, which is 8%.
Since the expected rate of return (10%) is greater than the
real interest rate (8%), it is profitable for the publisher to invest in the
machine. This is because the expected rate of return is higher than the cost of
borrowing funds to purchase the machine. Therefore, the publisher should choose
to invest in the machine.
The long-run aggregate supply (LRAS) curve is vertical
because in the long run, the level of output produced by an economy is
determined by the availability and productivity of its factors of production
(such as labor and capital), and not by changes in the price level. In other
words, in the long run, changes in the price level do not affect the level of
output produced, but only affect the level of prices.
On the other hand, the short-run aggregate supply (SRAS)
curve is upward-sloping, indicating that in the short run, the level of output
produced can be affected by changes in the price level. In the short run, firms
may be able to adjust their prices and output levels to respond to changes in
demand or supply conditions, but only to a certain extent.
The shape of the short-run aggregate supply curve can vary
depending on the assumptions and factors included in the analysis. However, it
is generally considered to be relatively flat to the left of the
full-employment output and relatively steep to the right.
To the left of the full-employment output, the short-run
aggregate supply curve is relatively flat because there is excess capacity and
unused resources in the economy, and firms can easily increase production
without significant increases in costs. Therefore, in the short run, the level
of output can be increased significantly without causing significant increases
in prices.
To the right of the full-employment output, the short-run
aggregate supply curve is relatively steep because firms are operating at or
near full capacity, and increasing output levels further requires significant
increases in costs, such as hiring additional workers or increasing overtime
pay. As a result, in the short run, the level of output can only be increased
at the cost of significantly higher prices.
Fiscal policy refers to the use of government spending and
taxation to influence the economy. The main goal of fiscal policy is to
stabilize the economy by promoting economic growth, controlling inflation, and
reducing unemployment. Fiscal policy is implemented by the government through
changes in its spending and taxation policies.
Contractionary fiscal policy is a type of fiscal policy that
involves decreasing government spending and/or increasing taxes in order to
reduce aggregate demand and control inflation. Contractionary fiscal policy is
used when the economy is growing too quickly, and inflation is becoming a
concern.
When the government reduces its spending, it reduces the
total demand for goods and services, which can lead to a decrease in economic
growth and employment. Similarly, when taxes are increased, people have less
disposable income to spend, which can also decrease economic growth and
employment. The combined effect of reduced government spending and increased
taxation is a decrease in aggregate demand, which can help to control
inflation.
The goal of contractionary fiscal policy is to reduce the
demand for goods and services in the economy, which can lead to lower prices
and a decrease in inflation. However, the use of contractionary fiscal policy
can also lead to a decrease in economic growth and an increase in unemployment
in the short term. Therefore, it is important for the government to carefully
consider the timing and magnitude of its contractionary fiscal policy actions
in order to balance the need to control inflation with the need to promote
economic growth and employment.
