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AaBbCcl 1.1 AaE AaBbCcl AaBbC AaBbC AaBbCcD AaBb 1 Normal 1Questio.. 1 No Spac.. Heading 1 tle Subtitle Subtle Paragraph Styles SECTION A 14 marks The economy of Euphoria has the following economic data. Year 2015 I 470 470 3.00 2.00 23,000 5.3 I2016 2017 Nominal Gross Domestic Product (S billions) Real Gross Domestic Product ($ billions) % change in real consumption spending % change in real investment spending Net exports (S biltions) 435 480 1.25 10.00 52,000 5.8 4 8 105 101 545 505 1.00 5 00 5,000 Natural rate of unemployment Index of production costs (2015 100) Productivilty index (2015 100) 5.4 107 103 100 100 Examine the data relating to the economy of Euphoria above and answer the following questions Q1 a. Calculate the real growth rate for 2016 and 2017 to two decimal places. b. Calculate the inflation rate for 2016 and 2017 to two decimal places. c. What phase of the business cycle was the economy in 2016 and 2017? Briefly give two (1 1 2 4 marks) Q2. What was the likely cause of the change in the unemployment rate in 2017? What type of reasons for your answer unemployment is likely to exist in Euphoria in 2017? Explain your answer (3 marks) Q3. Identify and explain the likely cause of inflation in 2017? (4 marks)

Explanation / Answer

(Q1)

(a) Real growth rate = % Change in real GDP

2016: (480 / 470) - 1 = 1.0213 - 1 = 0.0213 = 2.13%

2017: (505 / 480) - 1 = 1.0521 - 1 = 0.0521 = 5.21%

(b) Inflation rate = % Change in GDP Deflator, where GDP Deflator = (Nominal GDP / Real GDP) x 100

GDP Deflator, 2015: (470 / 470) x 100 = 100

GDP Deflator, 2016: (485 / 480) x 100 = 101.04

GDP Deflator, 2017: (545 / 505) x 100 = 107.92

Therefore,

Inflation rate, 2016 = (101.04 / 100) - 1 = 1.0104 - 1 = 0.0104 = 1.04%

Inflation rate, 2017 = (107.92 / 101.04) - 1 = 1.0681 - 1 = 0.0681 = 6.81%

(c)

In 2016, unemployment rate increased and real investment decreased compared to previous year (2015). So economy was in recessionary phase in 2016. In 2017, unemployment rate increased but at a lower rate than in 2016. Also, real GDP growth rate was higher than that in 2016, signifying higher economic growth. Therefore economy was in expansionary phase in 2017.

NOTE: As per Answering Policy, 1st multi-part question has been answered.

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