Question

1. This year, COVID-related disturbances have reduced Englands  net migration to about zero, instead of about 150 000, and construction is forecast to remain low over the short term. What principle of macroeconomics explains why a steady level of net investment in the construction of new offices, houses, retail centres etc. depends significantly on the steady growth of population. [Limit 5 words: 1 mark]

2. Why does it matter for the price of assets that the stock of existing assets is much greater than the flow of newly produced assets? [Limit 20 words: 1 mark]

Answer 1

1. The principle of macroeconomics which explains why a steady level of net investment in the construction of new offices, houses, retail centres etc. depends significantly on the steady growth of population is the Factor Proportion and Low of demand. This is because firstly when there is increase in population, there is increase in labor supply so when one factor of production (labor) increases the other factor of production (capital) needs to be increased to carry on production. Secondly when population increases there is increase in demand for goods and services and hence to increase supply the level of net investment must be increased.

2. It matter for the price of assets that the stock of existing assets is much greater than the flow of newly produced assets because when the stock of an asset is much greater than the flow of newly produced assets it means that the asset is being produced and used for long time and hence it will have a limited demand and established production process so its price will be low. But if there is no stock of an asset, the price of newly produced asset will be higher because of higher demand and unestablished production process.