Economic Analysis

[Name of the Institute]Economic Analysis

Question # 1

GDP (Y) =Gross Domestic Product

C=Consumer Spending =1000

I = Investment by the industry=200

(X-M) = Export over Import = 300

G = Government expenditure = 250 Calculation

Y= C + I + (X-M) +G

= 1000 + 200 + 300 + 250

Y = 1750

Question # 2

If domestic energy production is able to increase which allows importing less oil then the GDP will increase. Although (Fernando,1998)Gross domestic Product (GDP) is the sum of consumer spending, investment by the industry, difference of import less export and Government expenditure but if the import decreases and the export increases because of the production of energy inside the country, all else remains same then the Gross Domestic product will increases. If the country itself producing the energy which allows to import less all else remains same then the Gross Domestic Product will also increases. The Government expenditure will also increases because of the production in the country, it will also affects the Gross domestic Product but at the same time the income of people will increase because of the employment in the country as the production will increases and people will have more job opportunities and therefore, the consumer spending will also increases. This would result in the increase in Gross Domestic Product.

Consumer Price Index

Consumer Price Index (CPI) is the measure of the changes in the price level of the consumer goods and the services that are purchased by households.

Question # 1

CPI = Consumer Price Index

Assuming that the consumer price Index for the last year is 111 =CPI ^B

And the consumer Price Index for the previous years is 106 = CPI ^A

Formula

Inflation = B-A/A

CPI = 111-106/106

CPI = 0.047

CPI = 4.716%

Question # 2

CPI = Consumer Price Index

Assuming that the consumer price Index for the last year is 217 =CPI ^A

And the consumer Price Index for the previous years is 234 = CPI ^B

Formula

Inflation = B-A/A

CPI = 234-217/217

CPI = 0.047

CPI = 7.834%

Unemployment

The unemployment measures the total labor force which is unemployed currently.

Formula for Unemployment

Unemployment Rate = Number of people unemployed/Number of people in workforce

Question # 1

Number of people unemployed = 2500

Total civilian Labor force = 30000

Unemployment rate = Number of people unemployed/Number of people in workforce

= 2500/30000

= 8.33%

Question # 2Number of people unemployed = 500

Total civilian Labor force = 30000

Unemployment rate = Number of people unemployed/Number of people in workforce

= 500/30000

= 1.66

Rrf =bond yield-DRP-LRP-MRP

Assuming the Treasury bond interest rate is (risk free rate) is 3.50 while the cooperate bond yield interest rate is 5.25, the default risk is 1.5, liquidity risk premium is .025, the nominal interest rate = rrf+DRP+LRP+MRP

Cooperate bond yield = Rrf + DRP+LRP+MRP

Hence from the above equation it can be concluded that all the factors affects the interest rate of the treasury bills. However the tax also affects because if the Government impose more tax then interest on the treasury bills will decreases hence the lesser the bond yield, liquidity risk premium, maturity risk premium, and default risk premium greater the interest on the ...