ACJC Domestic Macro Prob Tutorial Suggested Responses

1 ©ACJC Econs Dept/2024/Domestic Macroeconomic Problems Anglo-Chinese Junior College Department of Economics H2 Domestic Macroeconomic Aims & Problems TUTORIAL WORKSHEET 1 Section B: Case Studies • Case Study 1: The tale of BRICS (2019 ACJC Term Assessment) • Case Study 2: A Tale of the Two World’s Superpowers (2020 NYJC Prelims) Section C: Essay Questions • Essay Q1: Circular flow of income and impact of government spending on inclusive growth and unemployment • Essay Q2: Economic growth and standard of living • Essay Q3: Causes of negative inflation and importance of various macroeconomic aims Note to students: It is very important for your learning that you thoroughly prepare your answers before tutorials. Your tutors may separately assign you modules from the SLS to supplement your understanding of the topic.

2 ©ACJC Econs Dept/2024/Domestic Macroeconomic Problems Section B: Case Studies • Case Study 1: The tale of BRICS (2019 ACJC Term Assessment) Suggested answers for H2 Case Study Q1 (BRICS) (a) (i) Compare the real GDP in China and India with that of Brazil and Russia from 2012 to 2016. [2] The real GDP in China and India and Brazil and Russia has increased in 2012- 2014. [1] While, real GDP in China and India has increased throughout the entire period, real GDP in Brazil and Russia fell in 2015-2016. [1] OR Real GDP in China and India has also been increasing at a faster rate compared to Brazil and Russia throughout the entire period. [1] (ii) Explain whether the data provided in Table 1 and 2 is sufficient to show that India has achieved sustained and inclusive economic growth. [4] Table 1: Positive economic growth throughout 2012-2016. [1] Data is sufficient to show that India has achieved sustained economic growth [1] However, data provided in Table 1 and 2 (data on GDP and HDI) are insufficient [1] to show that India has achieved inclusive economic growth as there is no data on income distribution or inclusiveness .[1] (Teaching point: need Gini coefficient to explain income distribution.) (Note: Students are to conclude if data is sufficient to show both sustained AND inclusive economic growth and explain why) (b) Extract 1 states that “the fall in commodity prices in 2015 to 2016 has done significant damage in all three countries.” With the aid of a diagram, explain the above statement with respect to Brazil’s real GDP. [6] (Context) Brazil is a commodity exporter of soybeans, iron ore, and crude oil. As such, when the prices of commodities fell, the total export revenue will be affected. Since the demand for Brazil’s commodities is likely to be price inelastic due to the lack of close substitutes, [1] the fall in price leads to a less than proportionate increase in quantity demanded. Hence, total export revenue for Brazil falls. [1] This leads to a fall in aggregate demand (as seen from a leftward shift of AD0 to AD1) [1],