Macroeconomics

BCO124 MACROECONOMICS Task brief & rubrics

Midterm Task brief

Description:

• This is an individual task.

• Weight: This task is worth 40% of your overall grade for this subject.

Submission: Via Moodle (Turnitin). Submissions will be accepted until Sunday 7th March 2021 at 23:59 CEST.

Formalities:

• The minimum amount of words to be used is 1000 and the maximm is 1500

• You may want to include images/graphics etc. (for example from their website) to make your reasoning and argumention more visual and explicative

• Font: Arial. Size: 12,5pts. Line spacing: 1,5. Text align: Justified.

• Appendices and References, do not count towards the final wordcount but are strongly recommended (referencing websites, articles, books etc.)

• The in-text References and the Bibliography have to be in Harvard’s citation style.

Questions:

1. Investment and the market of loanable funds (30%)

a) Suppose that Inditex, a Spanish multinational clothing company, is considering building a new clothes factory.

• Assuming that Inditex needs to borrow money in the bond market, why would an increase in interest rates affect Inditex’s decision about whether to build the factory? Use the graphical representation of the market of loanable funds to support your answer.

• If Inditex has enough of its own funds to finance the new factory without borrowing, would an increase in interest rates still affect Insitex’s decision about whether to build the factory? Explain.

b) Suppose now that Inditex and its lender agree on the nominal interest rate to be paid on a loan. Then inflation turns out to be higher than they both expected.

• Is the real interest rate on this loan higher or lower than expected?

• Does the lender gain or lose from this unexpectedly high inflation? Does the borrower gain or lose? Explain.

2. Economic growth and productivity

a) What is the productivity of a country? How it affects economic growth? Use the theoretical concepts delivered in this course, the graphs and equations

explained to answer the question.

b) What components of GDP (if any) would each of the following transactions affect? Assume that you live in the US. Explain.

1. Tom buys a new refrigerator from a domestic manufacturer. 2. Pedro hires a local contractor to build her a new house. 3. Ford sells a Mustang from its inventory to the Martinez family. 4. Ford manufactures a Focus and sells it to Avis, the car rental company. 5. The federal government sends your grandmother a Social Security check. 6. Your parents buy a bottle of French wine. 7. Honda expands its factory in Ohio.

3. Unemployment

a) Structural unemployment is sometimes said to result from a mismatch between the job skills that employers want and the job skills that workers have. To explore this idea, consider an economy with two industries: auto manufacturing and aircraft manufacturing.

• Suppose that one day the economy opens itself to international trade and, as a result, starts importing autos and exporting aircraft. What would happen to the demand for labor in these two industries?

• Suppose that workers in one industry cannot be quickly retrained for the other. How would these shifts in demand affect equilibrium wages both in the short run and in the long run?

• If for some reason wages fail to adjust to the new equilibrium levels, what would occur?

b) Between January 2012 and January 2019, U.S. employment increased by 17.3 million workers, but the number of unemployed workers declined by only 6.3 million. How are these numbers consistent with each other? Why might one expect a reduction in the number of people counted as unemployed to be smaller than the increase in the number of people employed?

Outcomes: This task assesses the following learning outcomes:

• understand the forces determining macroeconomic variables such as national output, inflation, unemployment, and interest rates;

• apply macroeconomic terminology and assess macroeconomic policy suggestions;

• evaluate real life situations with a practical application of the acquired tools and knowledge.

Rubrics

Exceptional 90-100

Good 80-89

Fair 70-79

Marginal fail 60-69

Knowledge and Identification of the main Issues

35%

Identifies and demonstrates a sophisticated understanding of the main issues / problems in the case study

Identifies and demonstrates an accomplished understanding of most of the issues/problems.

Identifies and demonstrates acceptable understanding of some of the issues/problems in the case study

Does not identify or demonstrate an acceptable understanding of the issues/problems in the case study

Application 35%

Student applies fully relevant knowledge to the situation provided

Student applies mostly relevant knowledge to the situation provided

Student applies some relevant knowledge to the situation provided. Some minor misunderstandings may be evident.

Student applies little relevant knowledge to the situation provided. Misunderstandings are evident.

Evaluation 20%

Student assembles a coherent response to the question, providing a range of support and justification that leads to a well-reasoned conclusion

Student assembles a good response to the question, providing support and justification that lead to a well- reasoned conclusion

Student assembles a fair response to the question, providing some support and justification that lead to a well- reasoned conclusion. Minor misunderstandings may be evident

Student’s response to the question lacks coherence. Limited support and justification are provided that may or may not be well linked to the conclusion

Communication 10%

Student communicates ideas extremely clearly and concisely. Compliance with the guidelines on font, size, line spacing and text align will also be taken into account.

Student communicates ideas clearly and concisely. Compliance with the guidelines on font, size, line spacing and text align will also be taken into account.

Student communicates ideas fairly clearly and concisely. Compliance with the guidelines on font, size, line spacing and text align will also be taken into account.

Student attempts to communicate ideas clearly and concisely, with some problems. Student does not follow the guidelines on font, size, line spacing and text align.