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Macro-economic influences on the New Zealand economy · Part 2 of 3
6 exam-style questions with model answers, plus 8 quick multi-choice questions — every question on this part of the standard, grouped by the 2 pages of notes they come from.
Write a full answer before you reveal the model one. That comparison is where the learning happens.
State the components of aggregate demand and explain what happens to real GDP and the price level when aggregate demand increases.
A sharp rise in world oil prices raises transport and energy costs for New Zealand firms.
Using the AD/AS model, explain in detail the impact on the goals of price stability and full employment.
The New Zealand government increases spending on infrastructure while, at the same time, a global slowdown reduces demand for New Zealand exports.
Using the AD/AS model, compare and contrast the impacts of these two influences on the goal of economic growth. Explain which is likely to have the greater impact.
The marginal propensity to save is 0.25 and savings are the only leakage. The government increases spending by $400 million.
Calculate the multiplier and the final change in real GDP.
An economy has MPS = 0.1, MPT = 0.2 and MPM = 0.2. A fall in world demand reduces export receipts by $800 million.
Calculate the final change in real GDP and explain in detail why the fall is larger than $800 million.
A government can stimulate the economy either by cutting income tax or by spending directly on infrastructure, using the same total amount of money.
Compare and contrast the effectiveness of these two fiscal policies in achieving the goal of economic growth. Refer to the circular flow model and the multiplier in your answer.