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OP7080 Applied Management

tag 0 Download 11 Pages / 2,603 Words tag 16-03-2021
  • Course Code: OP7080
  • University: Otago Polytechnic
    icon is not sponsored or endorsed by this college or university

  • Country: New Zealand


Explain what CPI measures and how it is calculated in NZ.Imagine in year 1 the CPI index was 1080 and in year 2 it was 1119, calculate the rate of inflation


  1. Use the data to calculate the value of Gross Domestic Product (GDP). Show your working 



Compensation of employees

18 900


Gross operating surplus

15 700


Final government consumption expenditure

6 200


Final household consumption expenditure

23 100


Changes in inventories

1 300


Gross fixed capital formation

9 500


Taxes on production and imports

4 500






13 300



15 100


Statistical discrepancy





Included or Excluded

(in the calculation of GDP)

(i)     The voluntary work of a group in cleaning up a local reserve.


(ii)    Activities of the underground economy.


(iii)   The purchase of alcohol for a party.


(iv)   The money spent on cleaning up the mess resulting from a road accident and hospital care for injured passengers.


(v)    The proceeds from illegal activities that do not go through a market.


(vi)    Spending by the government on new motorways out of all the main centers.


(vii)   A student renting a video for the weekend.


(viii)  Non-market activity such as growing your own vegetables or paving your own driveway.


(ix)    A business upgrading its computer network.


(x)     An electrician does the wiring for his neighbor (a plumber) in exchange for unblocking his drain, i.e. payments in kind.


(xi)    A builder build a block of flats.


(xii)   Paying for electricity.


  1. b) Complete the table below to indicate whether the following situations are included or

excluded in the calculation of GDP 

  1. c) Give two reasons why the official figures for National Income (GDP) may understate the true level of economic activity. 
  1. d) Why is GDP calculated in both real and nominal terms
  1. e) What does Real GDP per capita show
  1. f) Explain two limitations of Real GDP per capita as a measure of a country’s economic well-being.                        Section B:  ADAS model and economic growth  
  • Use your knowledge of the AD determinants to indicate the direction the aggregate demand curve will shift for the situations given in the table below. If the aggregate demand curve does not shift place a cross (X) in the space provided .


Direction that AD shifts inward or outward

AD curve does not shift place a cross (X)


Income tax rates decrease




A rise in business confidence




A larger than expected budget surplus




Interest rates rise as the OCR is raised




The government announces that GST will increase in six months time




New technology




Costs of production fall




A fall in business confidence




Transfer payments are increased




Next exports $1 912m surplus




The Reserve Bank Governor lowers the OCR and interest rates fall




Contractionary fiscal policy




A net migration loss




A budget surplus




A large increase in households starting to save for their retirement




Consumers go on a spending spree fearing price rises in the future



Use your knowledge of the AD determinants to indicate which direction the aggregate supply curve will shift for the situations given. If the aggregate supply curve does not shift place a cross (X) in the space provided .


Direction that AS curve will shift inward or outward

AD curve does not shift place a cross (X)


New technology is developed




Workers’ productivity falls as machinery wears out and depreciates




Workers’ wages rise




New Zealand dollar appreciates resulting in a fall in the price of imported raw materials




The government runs a budget surplus




Rising oil prices




An increase in investment spending by firms




Household incomes fall




An increase in GST



2017 and 2018 figures for NZ show that net migration is increasing. Keeping this fact in mind

Show the impact of this on the economy. In your answer you should:

  • Draw and fully label an AD/AS model to show the effect of migration changes.
  • Explain the changes to the AD and AS curves

Q4) Assume that an economy is operating at a moderate level of capacity utilisation, analyse the effects on real GDP, inflation (CPI), and unemployment level of the following events. Draw sketch graphs to support your findings.                                                       


AD-AS Model

Effect on real GDP, inflation (CPI). And unemployment level

A fall in business confidence






A large increase in households starting to save for their retirement



A rise in business confidence



Q5) (i)    Draw an AD/AS model to show the economy close to full employment, i.e., actual national income falls short of the economy’s potential national income. Label the recessionary or inflationary gap.

 (ii)  Show the effect of an increase in transfer payments. Label the new equilibrium price level P2

 Explain the effects of an increase in transfer payments on inflation and economic growth. Refer to your graph 

Section C: LO6- Impact of Government on the macroeconomic objectives.

Q1) Although economic growth is beneficial to a country, faster growth can be harmful. There is call from the Labour party to restrict foreign buyers from buying NZ property. At the same time the leader of NZ First party is calling on the government to reduce net migration to NZ. Discuss one advantage and two disadvantages in New Zealand due to faster economic growth of the property market and how does it affect to government’s macroeconomic objectives

Q2)    Monetary policy

The Economy Hub: Reserve Bank surprises, cuts rates to 2.25pc

With the help of the AD-AS model (draw a graph) discuss the above monetary policy and analyze its effect on the New Zealand economy. 

Your answer should include

-What the intention of monetary policy is and what role does the OCR play in NZ

-What type of monetary policy is being conducted above

-What might the potential impact of this policy be in the NZ economy

Q3) Fiscal policy

Budget 2017: Workers the winners, tax cuts


With the help of the AD-AS model (draw a graph) discuss the potential impact of the above decision to cut 

In addition to the diagram your answer include

-What is an intention of a fiscal policy

-What type of fiscal policy is mentioned above

-Discuss the potential impact of this policy in the NZ economy. 

Section D: LO7- International trade and global economy

Q1) International trade

  1. Look at the table below which country has comparative advantage of production of wools
  2. Look at the table below which country has comparative advantage in the production of fish why












Briefly explain if it is a good idea or not for NZ and Australia to trade fish and wool
  1. Read the case study below and also use your knowledge to discuss one possible disadvantage of this trade to NZ consumers and to the Chinese producers 

China opens to NZ chilled meat industry

(source: NZ Herald)

The Government has won access for the meat industry to send chilled meat to China.

Prime Minister John Key is in China and has announced the new access for chilled meat Photo: RNZ / Demelza Leslie

Prime Minister John Key said China had agreed to new regulations, so trade would be able to start in the next couple of months.

The meat industry has been lobbying to get the premium-priced product into the market for years, saying it would be worth hundreds of millions of dollars to the sector.

Mr Key said there was a lot of value in chilled meat, and getting access was a very important step.

"You can see companies like Shanghai Maling trying to buy half of Silver Fern Farms. That's because they can see how big this product is.

"On a value basis and on the fact that we can grow that market, and others already have access on chilled meat, it's a really important step for us," Mr Key said.

Primary Industries Minister Nathan Guy said it was an opportunity for exporters to get their product into the top end of the Chinese market.

"Then it will be up to each individual company to make sure they've got their high-end distribution networks available, so they can put this premium chilled meat product on the white-tablecloth restaurants here in Shanghai or Beijing."

Q2) Balance of payments

  a     Use the following terms to indicate under which category the transactions below would be included in the Balance of Payments.

  • Export of good
  • Investment income receipt
  • Import of good
  • Investment income payment
  • Import of service
  • Balance of current transfers
  • Export of service






Foreign tourist using domestic airline.



Premium paid to an overseas insurance company.



Interest paid by domestic companies for foreign bank loans.



Aluminium hub caps sold in Detroit by a New Zealand firm.



Foreign aid to a tsunami ravaged Pacific neighbor.



Dividends received by domestic shareholders from overseas.



A New Zealand firm buys cars from Japan.



A New Zealand flies on a plane operated by Singapore Airlines.



An Australian firm uses a New Zealand firm to ship its produce to an Asian destination.



b     Explain the likely effect of hosting the 2021 America’s cup (yachting) on New Zealand’s current account

 C Complete the table below for the New Zealand dollar in the situations indicated.


Demand for $NZ or supply of $NZ?

Direction of shift

Appreciation or depreciation of $NZ?


New Zealand tourist traveling overseas





New Zealand importers paying for raw materials





New Zealand firm setting up in Fiji





The Fijian government buying New Zealand goods and services





Loss of overseas markets markets for New Zealand




d)NZ dollar has been falling compared to the US in the last 1-2 years but increasing compared to the AUD, explain the effect of a falling dollar on exporters and importers for both countries.
  1. e) Explain the impact of a strong NZ dollar for our international education industry 
  2. f) Analyse how expansionary monetary policy and contractionary monetary policy will affect the exchange rate of the New Zealand currency 

Q3) For each of the situations describe in (a) through €, construct a demand and supply graph representing the foreign exchange market for the New Zealand dollar (NZ$). Use the trade-weigh index (TWI) to represent price. Analyse the situations by showing any changes in demand and supply of NZ$ and the impact (appreciation or depreciation) on the overall value of the NZ$ 

  • An economic recession in the USA impacts adversely on both the price and volume of New Zealand’s exports to the USA and other markets.
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