Question

1. Use the following information to work Problems (a) and (b). Show all your workings.

Michael is an Internet service provider. On 31 December 2018, he bought an existing business with servers and a building worth $400,000. During his first year of operation, his business grew, and he purchased new servers for $500,000. The market value of some of his older servers fell by $100,000.

(a)What was Michael’s gross investment, depreciation, and net investment during 2019?

(b)What is the value of Michael’s capital at the end of 2019?

2. Use the following data to work Problems (a) and (b).

The Australian dollar exchange rate increased from $US0.85 in June 2018 to $US1.07 in June 2019, and it increased from 70 euro cents in June 2018 to 74 euro cents in June 2019.

(a)Did the Australian dollar appreciate or depreciate against the U.S. dollar? Did the Australian dollar appreciate or depreciate against the euro? Explain your answers.

(b)What was the value of the U.S. dollar in terms of Australian dollars in June 2018 and June 2019? Did the U.S. dollar appreciate or depreciate against the Australian dollar over the year June 2018 to June 2019? Explain your answers.

3. The Australian Bureau of Statistics reported the following data for Australia in November 2019:

Labour force: 12,092,900

Employment: 11,457,100

Working-age population: 18,462,440

Calculate the

1. Unemployment rate.
2. Labor force participation rate.
3. Employment-to-population ratio.

4. Use the following information to work Problems (a) and (b). Show all your workings.

The people on Coral Island buy only juice and cloth. The CPI basket contains the quantities bought in 2018. The average household spent $60 on juice and $30 on cloth in 2018 when the price of juice was $2 a bottle and the cost of cloth was $5 a meter. In 2019, the juice is $4 a bottle, and cloth is $6 a meter.

(a)Calculate the CPI basket and the percentage of the household’s budget spent on juice in 2018.

(b)Calculate the CPI and the inflation rate in 2019.

Answer 1

Answer 1

a.

Michael’s gross investment during 2019=$400,000+$500,000=$900,000.

Depreciation is the fall in the value of asset. So, depreciation for 2019=$100,000.

Net investment=Gross investment-Depreciation=$900,000-$100,000=$800,000.

b.

Value of Michael’s capital =Net value of Assets=$900,000-$100,000=$800,000.

Answer 2:

a.

Australian dollar appreciated against the $US.

In June 2018, 1 Australian dollar=0.85US dollar

In June 2019, 1 Australian dollar=1.07US dollar.

It shows that in June 2018, one could buy 0.85$ for 1 Australian dollar and in June 2019, one can buy 1.07$, i.e. 0.22$ extra than in June 2018. Purchasing power of Australian dollar against US dollar is increased. So, Australian dollar is appreciated against US dollar.

Australian dollar appreciated against the euro cents.

In June 2018, 1 Australian dollar=70 euro cents

In June 2019, 1 Australian dollar=74 euro cents.

It shows that in June 2018, one could buy 70 euro cents for 1 Australian dollar and in June 2019, one can buy 74 euro cents, i.e. 4 euro cents extra than in June 2018. Purchasing power of Australian dollar against euro cents is increased. So, Australian dollar is appreciated against euro cents.

b.

In June 2018, 1 US dollar=1.1764 Australian dollar.

In June 2019, 1 US dollar=0.9345 Australian dollar.

U.S dollar depreciated against the Australian dollar over the year June 2018 to June 2019.

It shows that in June 2018, one could buy 1.1764 Australian dollar against 1 US dollar and in June 2019, one can buy 0.9345 Australian dollar, i.e. 0.2419 Australian dollar less than in June 2018. Purchasing power of US dollar against Australian dollar is decreased. So, US dollar is depreciated against Australian dollar.

Answer 3

Unemployment rate=(Labor force-Number of employed)/Labor force*100=(12,092,900-11,457,100)/12,092,900*100=5.25%.

Labor force participation rate=Labor force/Working-age population*100=12,092,900/18,462,440*100=65.5%.

Employment –to-population ratio=Employment/Working age population=11,457,100/18,462,440=0.62.

Answer 4:

(a)

CPI basket contains 30 juice ($60/$2) and 6 cloth($30/$5). Total household budget in 2018 was $90($60+$30). Household spent 66.67%(60/90*100) on juice in 2018.

(b)

CPI=∑P1Q0/∑P0Q0*100=[$4*30+$6*6]/[$2*30+$5*6]*100=$156/$90*100=173.33%.

Inflation rate=(173.33-100)/100=73.33%.