Assignment Task:
TASK:
Instructions:
1. Assignment must be typed and submitted in Microsoft Word format.
2. Format the assignment with 1.5 line spacing and size 12 point Arial font.
3. Submit the completed assignment (as a Word document) electronically via “Assessment 3: Written Assignment Submission Point” in the Assessment 2 folder.
4. You must clearly label the answer to each question.
6. Word count: 1500-2000 words (total), not including references, tables and figures.
The suggested word limit for each question is provided in the assignment.
7. You should be familiar with materials covered until week 7 to answer this assignment. You may also use library resources and other online articles to support your answers.
8. You must clearly acknowledge all sources using Harvard referencing system including the textbook.
9. Keep a copy of your submitted assignment, in case there are problems with the electronic submission.
Important Notice:
As this is an individual assessment, students should submit their own assignment. All assignments submitted will go through a matching process. If found to have cheated/plagiarised, all submissions will receive a mark of zero for this assessment item. It is up to you to keep your assessment confidential.
This Assignment consists of 3 questions. Attempt all of them.
Question 1 (10 marks, 600 words)
Utopia and Toughtimes are two neighboring countries. Both countries have a savings rate of 20% and follow a fixed exchange rate regime with their currencies pegged to the US dollar. The US is also the largest export market and trading partner for these two nations. The tables below summarize the economic performance of Utopia and Toughtimes over the last five years (2016-2020). Over the same time period the real GNP of US has grown at an average rate of 2.5% and its inflation rate has been 3%.
Utopia 2016 2017 2018 2019 2020
Current Account balance (billion dollars) -35 -38 -44 -48 -55
GNP (billion dollars) 1000 1020 1035.3 1050.83 1071.85
Budget deficit (billion dollars) 20 37 45 94 115
Inflation rate (%) 4 6 7 7 8
Unemployment rate (%) 3 3.5 5 6 6.5
Toughtimes 2016 2017 2018 2019 2020
Current Account balance (billion dollars) -37 -37 -38 -39 -37
GNP (billion dollars) 800 816 840.48 865.69 891.67
Budget deficit (billion dollars) 20 15 12 8 4
Inflation rate (%) 4 3.5 3 2.8 2.5
Unemployment rate (%) 6 5 5 4.5 4
Budget deficit is the difference between government expenditure and tax revenue (G-T). The GNP, Current Account balance and the budget deficit are adjusted for inflation (i.e., they are measured in constant US dollars).
(a) Write a brief report evaluating the economic performance of Utopia and Toughtimes from 2016-2020. The conclusion of your report should address the following question:
“Is there any danger of either of these countries experiencing an economic crisis in near future? Why or Why not?”
(10 marks, 600 words)
Question 2 (10 marks, 600 words)
The COVID19 pandemic has disrupted the entire world economy with most countries going into a recession.
(a) With the help of Aggregate Demand – Aggregate Supply model, explain the likely impact of the pandemic on an economy.
(2 marks, 100 words)
(b) Discuss the type of monetary and/or fiscal policy that would be required to get the economy back to full employment level of output and their resulting effect on the current account balance:
under a floating exchange rate system.
under a fixed exchange rate system.
(8 marks, 500 words)
Question 3 (15 marks, 800 words)
Ever since Australia and New Zealand signed Australia-New Zealand Closer Economic Relations Trade Agreement (ANZCERTA), many economists and policymakers have argued for the two countries to adopt a common currency say an ANZAC dollar. They argue that Australia and New Zealand satisfy the requirements for adopting a single currency and that both countries would benefit hugely by the removal of uncertainties associated with the fluctuations of their currencies against each other.
For more details on ANZCERTA, refer to the following website:
https://www.dfat.gov.au/trade/agreements/in-force/anzcerta/Pages/anzcerta-its-genesis-and-the-presentWrite a brief report evaluating the pros and cons of adopting a single currency for Australia and New Zealand. Your report should explicitly address the following questions:
(a) Do Australia and New Zealand satisfy the necessary conditions required for the adoption of a common currency?
(8 marks, 500 words)
(b) What are the likely gains from adopting a single currency for Australia and New Zealand? Do the gains outweigh the disadvantages for both countries that are likely to arise by giving up the right to conduct their monetary policy independently?
(7 marks, 300 words)
The following figures and tables show the correlation between Australia and New Zealand with respect to some important macroeconomic variables from 2000-2020. You may use them in your report to support your arguments. You can also use any other relevant data and evidence from other sources. Please cite all references.
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