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UNIVERSITY OF TECHNOLOGY SYDNEY

1. This assignment is worth 25percent of the total mark for this subject. 2. The Answer Sheet for this assignment should be uploaded using the appropriate link on UTSOnline.

Annexure 1 STATUS OF THE ECONOMY

• Although the country produced several types of commodities (goods and services) in the year 2008, but this country’s Central Statistics Office has grouped such commodities into five broad categories (A to E) for the purpose of estimating private consumption expenditure for the year 2008. Commodity Production Price

A 20 10 B 15 10 C 5 20 D 25 6 E 20

5 Further, during 2008, $30bn worth of shares were purchased by the citizen of the country. Total corporate profits for the year were $200bn, and dividends on shares, $20bn. The government also spent $10bn on social-security benefits, provided $20bn of subsidies to the poor. The government received $50bn of direct taxation, and $60bn of indirect taxation, revenue during the year. The entire capital employed in the economy during the year was raised through borrowing and equity. The wages and salaries for this year amounted to $140bn, and $200bn was the cost of rent. $150bn of net investments was made by the country during the year, and the assets depreciated by $50bn in this year. Net exports for the year were $0bn (all estimates for the year 2008 are expressed in terms of 2013 dollars.)

• For the year 2013, the government’s direct taxation revenue was $70bn.

The government spent $20bn on social-security benefits. The business paid, during the year, $100bn of rent from employing land for various productive activities. The cost of employing capital was $150bn for this year (all prices are in 2018 dollars). Other particulars for 2013 (at 2018 prices; expressed in $bn) include: Total government transfer payments 100 Private consumption expenditure 500 Net exports (deficit) (100) Net investment 150 Corporate profits 50 Government productive expenditure 100 Wages/salaries 300 Depreciation 50

• National Income data for the year 2018 is shown below.

Estimated National Income data for 2018 ($bn; 2008 prices) Government productive expenditure 200 Net exports (deficit) (60) Direct taxes 40 Interest on capital 100 Depreciation 30 Corporate profits 210 Assignment 1-A2018

multiplicative effect. The average value of the investment multiplier for investment in Project A can be determined from the following information:

Table 1:Income and Savings (Real $)

Year Average Average

Disposable Savings Income 1 50,000 0 251,000 500 3 52,000

(1,000 4 53,000 (-) 1,500 5 54,000 (-) 2,000 (-) denotes a negative value

• The GDP of the country, inclusive of the multiplicative effect of investment, for Proposal

B, for the year 2023, can be estimated from the following simplified representation of the country’s economy: The total value of the output produced by all firms in the country is estimated to be $900bn. Of this output, $50bn worth of output is expected to be kept aside by the firms to build inventories for the future, and $100bn will be sold to other firms as intermediate inputs. In that year, the production processes are estimated to consume $200bn worth of intermediate inputs (raw materials), and the corporate sector is estimated to suffer a loss of $180bn.The indirect taxes in that year are estimated to be $134bn, and wages and salaries, $300bn. Further, the government will pay $50bn of assistance to the economically disadvantaged in that year. Annual rent is expected to be $100bn. All these estimates are in 2013 prices.

• Assume that the investments in either of the proposals will not cause any inflationary pressures. Additional Information

• With 2013 as the base year, the GDP deflators for the various years can be estimated from information provided in Table 2. In this table the country’s statisticians have grouped the entire economic activity of the country into three hypothetical commodities (A, B and C). The levels of output and price of each commodity for the years 2008, 2013, 2018, and 2023 are shown in the table. Assume that the outputs produced are entirely purchased by the final users. Table 2: Outputs and Private consumption expenditure 600 Government transfer payments 70 GDP at factor prices 770 Gross Investment 110 Indirect Taxes 80

• While it is difficult to precisely predict future economic growth, the country's leading economists believe that if no measures are taken to revitalize the economy in 2018, the economy will become stagnant and its effect would be reflected in the GDP for the year 2023. In order to estimate the GDP for 2023, the economists have aggregated the economy into three major sectors as shown below: i+w+r+p = 140 s = 540 f Industry1 m s=400 f i+w+r+p Industry2 50 m 140 80 i+w+r+p = 318 s f =288 Industry3 m 100 50 i = interest; w = wages/salaries; r = rent; p = profit; m = intermediate inputs; s = market value of total output; f = market value of output sold to final users. Note: All values are in billions of dollars, expressed in 2018 prices. Other select information for the year 2023 (in 2023 prices) is noted below: Gross National Expenditure (GNE) 1000 Depreciation 100 Direct taxes 100 Indirect taxes 62 Total Imports 200 Transfer payments 200 Subsidies 100

• If however measures are taken to revitalize the economy (in this instance

– by investing in Proposal A or Proposal B) in 2018, the GDP for the year 2023 could be affected - due to the multiplicative effect of investments. For Proposal A, for example, GDP will be roughly equal to the ‘without investment GDP’ for 2023, plus investment inclusive of the Assignment 1-A2018