Answered: Question 2. 1:What are your general…

ECON MACRO

5th Edition

ISBN:9781337000529

Author:William A. McEachern

Publisher:William A. McEachern

Chapter6: Tracking The U.s. Economy

Section: Chapter Questions

Problem 1.2P

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2.In a farway country, banana is the most important crop exported to rest of the world. Data about economic indicators for farway country are given in Table 1.

Table 1: Macro Economic Indicators of Farway Country (all figures in million $)

year	Consumption Expenditure	Investment Expenditure	Government Expenditure	Exports	import
2012-13	100	20	50	60	70
2013-14	120	25	60	65	75
2014-15	140	30	70	65	78
2015-16	160	28	40	50	75
2016-17	165	25	30	45	75
2017-18	170	24	20	40	80
2018-19	170	20	20	35	80

In recent years, a life style change, leading to more consumption of processed food, than raw food has led to reduction in demand for Bananas for consumption. Since the manufacturing sector in FarwayCountry is not developed, the country has to import most of its processed food needs, leading to increase in imports.The Government of Farwaycountry is contemplating inviting foreign investors to establish industries to manufacture banana products such as candies, marshmallows, chips, cookies etc. to give boost to manufacturing sector in the economy. Mr. Brown runs Candie Floss inc., a leadingcompany from Australia that manufactures candies,

and sells across the world. Mr. Brown is approached by the External Affairs Minister of Farway Country, inviting him to set up his unit in Farway Country. Mr. Brown is looking for some advice, he approaches AIIM for consultation. As his consultant, write your answers in the space provided:

Question 2. 1:What are your general observations about the Macroeconomic condition in Farway Country based on data in Table 1? Write 5 clear observations in the space provided

Question 2. 2:There is a general observation that Consumption expenditure by people in FarwayCountry is increasing, since people in the import business (traders who import goods and sell and earn margins) is flourishing. Do you support this observation based on data? Do you think this observation fits well with Keynesian Consumption Function, as opposed to Permanent Income Hypothesis or Life-cycle Hypothesis (since increase in income from Imports is due to increase in demand for processed foods, which is transitory in nature)?

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