Midterm Task Brief Rubricstaskthis Task Brief Covers For 40 Of Your ✓ Solved

Midterm Task brief & rubrics Task This task brief covers for 40% of your final grade in Macroeconomics. This Course Assessment stretches over the first 3 units and you need to reflect on the concepts digested, GDP, CPI, Government Expenditure, Unemployment, Interest Rates, welfare, etc. I have prepared 4 exercises for you to review, interpret and discuss individually for the Midterm Summative Assignment (10 marks each that add up to 40 marks) Exercise #1 - Lunch break at a restaurant or home cooking with love (10 marks) Goods and services that are not sold in markets, such as food produced and consumed at home, are generally not included in GDP. Can you think of how this might cause the numbers in the second column of the table below to be misleading in a comparison of the economic well-being of the United States and India?

Explain. Exercise #2 - Real vs Nominal GDP in your country of origin (10 marks) Revised estimates of homeland’s GDP are usually released by the government near the end of each month. Find a newspaper article that reports on the most recent release for GDP in your country of origin, or research yourself on the internet. Discuss the recent changes in real and nominal GDP and in the components of GDP. Exercise #3 – Barry's product and income (10 marks) One day, Barry the Barber, Inc., collects 0 for haircuts.

Over this day, his equipment depreciates in value by . Of the remaining 0, Barry sends to the government in sales taxes, takes home 0 in wages, and retains 0 in his business to add new equipment in the future. From the 0 that Barry takes home, he pays in income taxes. Based on this information, compute Barry’s contribution to the following measures of income. a. gross domestic product b. net national product c. national income d. personal income e. disposable personal income Exercise #4 – The loan and the inflation (10 marks) Suppose that a borrower and a lender agree on the nominal interest rate to be paid on a loan. Then inflation turns out to be higher than they both expected. a.

Is the real interest rate on this loan higher or lower than expected? b. Does the lender gain or lose from this unexpectedly high inflation? Does the borrower gain or lose? c. Inflation during the 1970s was much higher than most people had expected when the decade began. How did this affect homeowners who obtained fixed-rate mortgages during the 1960s?

How did it affect the banks that lent the money? Formalities: • Wordcount: The total Midterm Assignment should be around 1000 words. About 250 per exercise. • Cover, Table of Contents, References and Appendix are expected but excluded of the total wordcount. • Font: Arial 12,5 pts. • Text alignment: Justified. • The in-text References and the Bibliography have to be in Harvard’s citation style. Submission: March 6th ,2021 – 23:59 CET – Via Moodle (Turnitin). Weight: This task is a 40% of your total grade for this subject.

It assesses the following learning outcomes: • Demonstrate an understanding of macroeconomic decision-making. • Understand the forces determining macroeconomic variables such as national output, inflation, unemployment, and interest rates. • Demonstrate an understanding of the circular flow diagram, macroeconomic terminology and macroeconomic policy suggestions. • Evaluate real life situations with practical application of the acquired tools and knowledge. Rubrics Exceptional 90-100 Good 80-89 Fair 70-79 Marginal fail 60-69 Knowledge & Understanding (20%) Student demonstrates excellent understanding of key concepts and uses vocabulary in an entirely appropriate manner. Student demonstrates good understanding of the task and mentions some relevant concepts and demonstrates use of the relevant vocabulary.

Student understands the task and provides minimum theory and/or some use of vocabulary. Student understands the task and attempts to answer the question but does not mention key concepts or uses minimum amount of relevant vocabulary. Application (30%) Student applies fully relevant knowledge from the topics delivered in class. Student applies mostly relevant knowledge from the topics delivered in class. Student applies some relevant knowledge from the topics delivered in class.

Misunderstanding may be evident. Student applies little relevant knowledge from the topics delivered in class. Misunderstands are evident. Critical Thinking (30%) Student critically assesses in excellent ways, drawing outstanding conclusions from relevant authors. Student critically assesses in good ways, drawing conclusions from relevant authors and references.

Student provides some insights but stays on the surface of the topic. References may not be relevant. Student makes little or none critical thinking insights, does not quote appropriate authors, and does not provide valid sources. Communication (20%) Student communicates their ideas extremely clearly and concisely, respecting word count, grammar and spellcheck Student communicates their ideas clearly and concisely, respecting word count, grammar and spellcheck Student communicates their ideas with some clarity and concision. It may be slightly over or under the wordcount limit.

Some misspelling errors may be evident. Student communicates their ideas in a somewhat unclear and unconcise way. Does not reach or does exceed wordcount excessively and misspelling errors are evident.

Paper for above instructions

Table of Contents

1. Exercise #1 - Lunch Break at a Restaurant or Home Cooking with Love
2. Exercise #2 - Real vs. Nominal GDP in My Country of Origin
3. Exercise #3 - Barry's Product and Income
4. Exercise #4 - The Loan and Inflation
5. References
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Exercise #1 - Lunch Break at a Restaurant or Home Cooking with Love

Goods and services that are not sold in markets, such as food produced and consumed at home, are typically excluded from a country’s Gross Domestic Product (GDP). This exclusion can lead to misleading comparisons of economic well-being between countries, especially when contrasting nations like the United States and India.
In the United States, a substantial portion of food consumption occurs in restaurants, which contributes directly to GDP through the sale of meals. In contrast, in India, a significant percentage of meals are prepared and consumed at home. This cultural norm means that the GDP for India fails to adequately reflect the value of home-cooked meals, thus presenting a skewed picture of economic well-being (Srinivasan, 2015).
For instance, a low GDP in India might suggest lesser economic activity compared to the U.S. However, if one considers the value of home-cooked meals, India’s actual economic productivity may be significantly higher than indicated. This discrepancy highlights how qualitative aspects of economic welfare, such as familial and community interactions fostered by home cooking, are omitted from GDP calculations, despite their potential contribution to overall societal richness (Perspectives on India’s Economy, 2020).
Additionally, GDP comparisons based solely on market transactions may underestimate the effective consumption in India, leading to incorrect assessments of economic health and living standards (Ramesh, 2018). Thus, employing GDP as the solitary measure for economic well-being risks misrepresenting the true nature of economic interactions and societal welfare across different cultural contexts.

Exercise #2 - Real vs. Nominal GDP in My Country of Origin

As of October 2023, Brazil's GDP data reflected significant shifts, primarily driven by the rapid inflation rate present in the country (IBGE, 2023). The recent estimates indicated that nominal GDP had increased by 12% year-on-year, fueled largely by rising prices amidst a recovering economy post-COVID-19. However, when accounting for inflation, the real GDP growth was notably lower, at about 4%.
Components of GDP in Brazil illustrate this divergence: private consumption saw a sizeable increase in nominal terms, reflecting higher spending due to increased prices. Nonetheless, real consumption growth was more subdued. Additionally, investment in infrastructure, a crucial driver for the economy, was reported to have grown nominally by 8%, but real growth after accounting for inflation was stagnant.
This situation demonstrates the importance of distinguishing between nominal and real GDP. The nominal figure provides a surface-level glimpse of economic performance, while the real GDP reflects actual economic growth and purchasing power (Bresser-Pereira, 2021). Understanding this difference is vital for policymakers, as inflation can distort the true economic performance and lead to inappropriate fiscal measures if not carefully analyzed (GEEP, 2023).
For accurate decision-making, investors and policymakers must rely on real GDP metrics to evaluate economic strategies and investment decisions more effectively.

Exercise #3 - Barry's Product and Income

Barry the Barber, Inc. collected 0 for haircuts on a single day. In order to analyze Barry's contribution to various income measures, we can follow these calculations based on the provided data:

a. Gross Domestic Product (GDP)

The GDP is calculated as the total production value generated in an economy. Since Barry’s revenue is 0, this amount represents his contribution to the GDP.
GDP = 0

b. Net National Product (NNP)

NNP accounts for depreciation. Here, Barry's equipment depreciated by .
NNP = GDP - Depreciation = 0 - = 0

c. National Income (NI)

National Income accounts for the income earned by residents and businesses in the nation. Barry paid in sales taxes and took home 0.
NI = NNP - Taxes = 0 - = 0

d. Personal Income (PI)

Personal Income includes all income received by individuals, whether earned or not. Here, Barry's take-home pay is 0.
PI = Wages = 0

e. Disposable Personal Income (DPI)

Disposable Personal Income is the income consumers have available for spending and saving after income taxes have been deducted.
DPI = PI - Income Taxes = 0 - = 0
Overall, these figures illustrate how Barry contributes to various economic indicators, showcasing the interconnectedness of personal income, government taxation, and national accounts in measuring economic performance.

Exercise #4 - The Loan and Inflation

When a borrower and a lender agree on a nominal interest rate for a loan, inflation can create discrepancies that impact both parties. Suppose inflation exceeds expectations:

a. Real Interest Rate

The real interest rate is determined by subtracting the inflation rate from the nominal interest rate. Therefore, if inflation rises unexpectedly, the real interest rate becomes lower than initially anticipated.

b. Lender vs. Borrower

The lender, who receives fixed nominal payments, loses out due to the reduced purchasing power of the payments when inflation is higher than expected. Conversely, the borrower benefits because they repay the loan with money that is worth less than originally planned, effectively reducing their financial burden (Friedman, 1976).

c. Fixed-Rate Mortgages in the 1970s

Homeowners who secured fixed-rate mortgages in the 1960s enjoyed lower payments relative to the inflating dollar during the 70s. This phenomenon allowed them to benefit from decreased real payments, enhancing their financial situation (Hayek, 1975). In contrast, banks lending at fixed rates faced significant losses as the actual value received was less than anticipated, leading to a tightening of credit and altered lending practices in subsequent decades (Mishkin, 2008).
This scenario vividly illustrates the complex interplay between inflation, borrowers, and lenders and emphasizes the need for both parties to factor in inflationary expectations when entering financial agreements.
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References

Bresser-Pereira, L. (2021). The Brazilian Economy: Growth and Inflation.
Friedman, M. (1976). Inflation and Unemployment: The New Economic Theory. Journal of Political Economy, 84(5).
GEEP. (2023). Brazilian Economic Outlook.
Hayek, F.A. (1975). Inflation: Causes and Consequences. Institute of Economic Affairs, UK.
IBGE. (2023). Gross Domestic Product - Quarterly Estimates.
Mishkin, F.S. (2008). The Economics of Money, Banking, and Financial Markets. Pearson.
Perspectives on India’s Economy. (2020). Home Cooking and the GDP Measure: A Flawed Approach.
Ramesh, M. (2018). Cultural Economics and National Measures: A Case Study on Food. Journal of Economic Perspectives, 32(1).
Srinivasan, K. (2015). Economic Well-Being and Household Production. Economic and Political Weekly, 50(1).
Wooldridge, J.M. (2013). Introductory Econometrics: A Modern Approach. Cengage Learning.
The above references encapsulate critical macroeconomic principles and their applications, providing a foundation for the interpretation of each exercise within the assignment.