ECO401 Economics Assignment 2 Solution Spring 2013

The Case:
Norway has the second highest GDP per-capita and enjoys fourth highest GDP per capita (in terms of Purchasing power (PPP)) in the world. Norway is considered the second wealthiest country in the world in monetary value. It has largest capital reserve per capita of any nation. The standard of living in Norway is among the highest in the world. Unemployment rate  in Norway is very low; currently it is 3.0%.It is richly endowed with natural resources including hydropower, petroleum, fish, forests and minerals. In 1960s large reserves of petroleum and natural gas were discovered, which led to a boom in the economy. Export revenues of Norway from oil and gas have been raised to almost 50% of total exports. Norway is the fifth largest oil exporter and third largest gas exporter in the world. Suppose in year 2011, Norway’s saving was characterized by the equation, S = -200 + 0.40Y. Government expenditures were Rs.240 million and total investment was about Rs.110 million and Taxes are Rs.290 million. At that time, Norway paid Rs.150 million as import payments and earned Rs.230 million as export revenues.

With the help of above information, calculate the following for Norway’s economy for the Year 2011.

a. Equilibrium Output Level with the help of injections leakages method.
b. Saving level.
c. Consumption level
d. Average propensity to consume (APC)
e. Average propensity to save (APS)

Marking Scheme:
Part a, b, c, d, e: (Marks: 6+4+4+ 3+3)

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