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 Imports 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 Farway Country is not developed, the country has to import most of its processed food needs, leading to increase in imports. The Government of Farway country 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 leading company 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 Farway Country 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)?

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 Imports 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 Farway Country is not developed, the country has to import most of its processed food needs, leading to increase in imports. The Government of Farway country 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 leading company 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 Farway Country 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)?

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter19: Measuring Economic Performance

Section: Chapter Questions

Problem 6P

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