Question

The COVID 19 pandemic and the associated lockdown has led to an increase in aggregate prices of food in Ghana. Using your understanding of (a) the fundamental causes of inflation, (b) the aggregate demand and aggregate supply curve (LR and SR) shifts, provide your sound reasoning for why this aggregate food price increases could have happened in this season.

[30 Marks]

2.

Using the data on the Economy of Ghana provided below, answer the following questions:

Price index of Agriculture (2015=100) Constant (2015) Prices ( Billion

Ghana Cedis)

2016 2017 2018 2019 2016 2017 2018 2019

1. TOTAL AGRICULTURE 130.6 174.4 222.4 317.8 2.89 2.99 3.12 3.06

1.1 Agriculture and

Livestock 133.7 174.0 211.8 317.3 1.99 2.11 2.22 2.13

1.2 Cocoa Production and

Marketing 140.4 209.1 305.6 391.9 0.47 0.44 0.45 0.47

1.3 Forestry and Logging 108.1 144.2 174.1 244.9 0.32 0.33 0.37 0.35

1.4 Fishing 98.2 134.6 199.1 221.7 0.11 0.11 0.11 0.12

a. Compute the real growth rate in total agriculture for 2017, 2018 and 2019. Interpret your results. As an advisor to the Minister of Agriculture, what economic advice will you give him?

b. In real terms, the forestry and logging subsector grew faster than that of the fishing subsector in 2017. Do you agree with this statement? Why?

c. Compute the inflation for total agriculture for each period from 2016 to 2019.

Interpret your observations carefully.

[20 Marks]

3.

a. You have been given the following data:

Net non-business interest income 24

Government purchases 670

Corporate retained earnings 73

Gross private investment 530

Depreciation 10

Net exports -240

Personal consumption 2800

Transfer payments from government 54

Foreign factor income earned domestically 320

Personal taxes 84

Social security taxes 67

Income from foreign domestic factor sources 300

Indirect taxes 45

On the basis of these data calculate:

(i) GDP

(ii) GNP

(iii) NNP

(iv) NI

(v) PI

(vi) Disposable personal income

[20 Marks]

Show working with explanations.

b. Differentiate clearly between currency revaluation and currency appreciation.

[5 Marks]

c. Discuss five (5) of the omissions from GDP that over/undervalue Ghana’s GDP. What do these mean for Ghana’s economy? [5 Marks]

4.

a. The government of Ghana has gradually outlined measures to ease an opening of the economy. The government is eager to see the economy bounce back. Suppose the government approaches you as a consultant and indicates that they will like to have a very low unemployment, zero inflation and very high GDP growth. How would you advice the government? Be concise in your advice. [10 Marks]

b. Business cycles are pervasive in all macroeconomic variables. Does the relative durations of expansions and recessions help explain the fact that long-term economic growth has been positive?

Answer 1

The COVID-19 Pandemic has brought many diffculty in the economic condition of not only Ghana but in almost most of the countries .It has lead in increase in price of many thing be it staples, or anything . If we talk about food prices icrement due to inflation . Whenever the inflation (increase ) happened , it lead to increase in the price to the consumers . The higher income class has no diffculty in buying food at high price untill the lockdown which leadd to purchase by them in high amount and causing inflation of off price for the low class families . Therefore inflation is a major reason for price hike of food Also in this season , which is good for agriculture , the proper farmng is not being doen due to lockdown as no one is fully allowed to work for production of food in proper manner or usual . Therefore the supply is not enough to meet the demand of the every individual of Ghana .Thus the emandd of food is high causing high price for the food.

Fundamental cause of inflation is due to cost push inflation generated by lockdown affected economic activities and demand is lowest and there is job loss due ongoing recession.cost of production Is high compare to demand.

Due to cost pull inflation food price are increases as people have less money to spend and food making company or individual have more as compare to their income as demand is low and thus cost of production of food is high.

Aggregate demand shift towards lefts side as demand decrease due to job cut and low income. Aggregate supply curve also shift to left as supply also decline because of a decline in the economy capital stock, labor supply, or productivity, or an increase in the rate of unemployment, as well as supply chain management also affected due to lockdown and social distancing.

Food price increases as cost pull inflation due to corona recession as well import of essential food element also effected due to supply chain disruption cause by corona.

we will calculate GDP by the expenditure approach, which includes all final expenditures in the economy done by households, firms and government.

GNP (mp) = C + I + G + (X- M)

C = private/personal consumption = 2800

I = net investment expenditure = gross investments - depreciation = 530 -10 = 520

G = government purchases/expenditure = 670

X-M = net exports = exports - imports = - 240

GNP (mp) = 2800 + 520 + 670 - 240 = 3750

for GNP from GDP

we add Net factor income from abroad (NFIA) to GDP to get GNP

NFIA = 320

GNP = 3750 + 320 = 4070

from GNP to NNP,

we subtract depreciation from GNP

4070 - 10 = 4060 = NNP

as all this is calculated from GNP(mp) that is GNP at (market price)

NNP (mp) = 4060

for NI or national income

national income is NNP (fc) that is NNP at factor cost

we subtract net indirect taxes (NIT) from NNP (mp) to get NNP (fc)

NNP mp - NIT = 4060 - 45 = 4015 = NNP fc = NI = national income