ECON 141 Assignment 1

Name: Mikhail Surti
300655115
ECON 141 assignment
Part 1
1.
2. (i)
388,338−135,181
∗100 %=187.27 %(2dp)
135,181
(ii)
282,327−163,618
∗100 %=72.55 % (2dp)
163,618
3. Between the period from 2003 to 2023, NGDP grew higher than RGDP, this shows that an
increase in GDP is predominantly due to increases in the prices of goods and services due
to inflation, as opposed to an actual increase in the quantity of goods or services produced.
4. RGDP per capita 2003 - 2023

(i)
=2.09% (2dp)
(ii)
=0.45% (2dp)
5.
During the 2003-2008 period, the RGDP per capita growth had exceeded the typical 1.5%
growth p.a. This shows a ‘boom’ phase in the economy, indicating that the economy was
growing at a faster rate, due to factors such as increased investment and consumer
spending in the economy. However during the 2008-2013 period, The RGDP per capita
growth was growing at a lower rate than the typical 1.5% growth p.a. This shows a ‘bust’
phase in the economy, indicating slower growth due to factors such as a reduction in
investment and consumer spending and global economic instability.
Part 2
6.
7.
Per capita growth rate in private investment (2014-2019)
= 20.34% (2dp)
= -4.63% (2dp)
= 15.34% (2dp)
Between 2014-2019 and between 2021-2023, the growth rate of private investment per
capita was positive by 20.34% and 15.34%. Between 2019-2021, the growth of private
investment per capita was negative by 2.63%. A positive growth will cause the AE curve to
shift upwards (2014-2019 and 2021-2023), and a negative growth will cause AE to shift
downwards (2019-2021).
8. Government consumption per capita

9.Government consumption expenditure was used as a stabilisation policy during the
economic slowdowns during 2020 and 2021. In relation to the context of the IS-MPR,
demand model of aggregate expenditure, and aggregate demand, an increase in
government expenditure during 2020 and 2021 would result in an increase in aggregate
demand, as changes in investment would directly impact aggregate expenditure. The
increase in aggregate demand would directly offset the negative impacts to private
investment, as a result of the effects to the economy caused by the pandemic. The increase
in government expenditure as an investment allows for an increase in aggregate
expenditure, allowing for greater economic stability and greater stimulation of economic
activity from the government.
10. Higher government spending can supplant private investment as it can reduce resources
available to the private sector (such as labour and capital such as machinery). This is
because as government expenditure increases, this leads to an increase in aggregate
demand for goods and services, causing an increase in prices for goods and services and
leading to higher interest rates in the economy. Increases in interest rates means that
businesses are less willing and able to borrow as it has become relatively more expensive to
borrow due to the increase in interest rates, leading to a reduction in overall private
investment.
11.
The Reserve Bank’s OCR (official cash rate) has gradually declined over time between
2014-2020, where it has fallen from 2.5% to 0%. From 2021-2023, the OCR has surged
rapidly from near 0% to 6%. The reasoning for this could be due to high inflation occurring,
causing the OCR to increase.
12. The economic events materialising in the global economy from early 2020 can be
described as a ‘demand shock,’ or alternatively the ‘pandemic shock.’ This economic shock
was caused by the widespread effects of the COVID-19 pandemic, which caused large
disruptions in supply chains and reductions in consumer spending. This led to a significant
decline in overall consumer spending during this period. To prevent further downfall of the
economy during this period, central banks and governments implemented numerous fiscal
and monetary policies in order to help mitigate the impacts of this economic event and help
stabilise the economy.
13. If government spending increased, this would likely cause an increase in interest rates to
occur in the economy. Increased government spending will likely lead to an increase in
demand for loans, as loans are typically used by the government to finance for this
government expenditure and overall expenditure, and in turn this will cause higher pressure
on interest rates. Increased interest rates incentivise people to save their funds into loanable
markets, in order to accommodate for the increase in government spending.
14. (i) The increase in expected returns on investment would be represented on the income-
expenditure model as a shift to the right of the I(r) investment function curve. A rightward
shift of the investment function curve (I(r)) indicates that businesses and firms are now more
willing and able to invest more funds, as their expected returns on investments would likely
increase.
(ii) Between 2014-2020 (pre-pandemic period), Interest rates shown by the OCR on the
graph in question 11 were relatively low. If interest rates were relatively low and there was
an increase in expected returns on investment, this would have likely caused an increase in
private investment during this period. This is because lower interest rates makes it relatively
more affordable for firms to borrow, and allows for increased investment for firms.
Between 2021-2023 (post-pandemic period), Interest rates shown by the OCR began to
increase during this period due to current high inflation. If interest rates were becoming
relatively high during this period, assuming that expected returns in investment have risen
over time following the pandemic shock in 2020, this would result in a decrease in private
investment during this period. As it has become relatively less affordable for firms to borrow
due to increased interest rates during this period.
15. During 2020, the monetary policy, including the OCR, could have influenced the degree
of supplanting resulting from fiscal policy. This is because when the OCR lowers, this
encourages people to increase borrowing, as it is relatively more affordable for people to
borrow funds, due to the decrease in interest rates from the OCR. This will directly offset the
crowding effect as a result of an increase in government expenditure. And when the OCR
increases, this could discourage people from borrowing and spending, which could
potentially increase the crowding out effect. Therefore, this shows that the OCR can play a
significant role in determining the interactions between fiscal and monetary policies.

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ECON 141 Assignment 1

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Name: Mikhail Surti

ECON 141 assignment

4. RGDP per capita 2003 - 2023

Per capita growth rate in private investment (2014-2019)

Per capita growth rate in private investment (2019-2021)

Per capita growth rate in private investment (2021-2023)

8. Government consumption per capita

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