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Assignment sample solution of ECON2020 -Macroeconomic Principles

Q.1 What is Gross Domestic Product (GDP), and how is it measured?

Q.2 Discuss the causes and consequences of inflation.

Q.3 How do central banks use monetary policy to control economic fluctuations?

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Economics Assignment Sample

Q1:

Answer :

Q.1 Ans.  Gross Domestic Product (GDP) measures the total monetary value of all final goods and services produced within a country over a specific period. It is calculated using three approaches: the production approach (sum of value-added at each production stage), the expenditure approach (sum of consumption, investment, government spending, and net exports), and the income approach (sum of wages, rents, interest, and profits). GDP is a crucial indicator of economic health, guiding policymakers in assessing growth, setting fiscal policies, and comparing international economic performance.

Q.2 Ans. Inflation arises from demand-pull factors, such as increased consumer spending, or cost-push factors, like rising production costs. Consequences include reduced purchasing power, uncertainty in investments, and wage-price spirals. Moderate inflation can encourage spending and investment, but hyperinflation destabilizes economies. Policymakers use monetary tools, such as interest rate adjustments, and fiscal policies to manage inflation and maintain economic stability.

 

Q.3 Ans. Central banks implement monetary policy by adjusting interest rates, controlling money supply, and utilizing open market operations. During recessions, they lower interest rates to stimulate borrowing and investment. Conversely, in inflationary periods, raising rates curtails spending. These measures influence aggregate demand, employment, and price stability, helping to moderate economic fluctuations and promote growth.