ECO 403 MACROECONOMICS GDB NO. 1 Discussion and Solution Due Date: 19 November, 2015

Dear Students!

This is to inform that Graded Discussion Board (GDB) No. 01 will be opened on 18 November, 2015 for discussion and last date for posting your discussion will be 19 November, 2015.

This Graded Discussion Board will cover first 9 lessons.

The Case:

Kenya is one of the fastest growing economies of Africa according to latest economic updates published by World Bank. In these updates, it has been reported that this economy needs sound economic policies for future improvement.  Suppose Government of Kenya decides to implement the manifesto in a true manner and spirit. Long and short of this manifesto is that 35% of the government spending will be used on infrastructure (motorways, railways, dams and public places) while 45% of government spending will be used on education, health, promotion of cottage scale industry and welfare programs while remaining amount for weapon and defense.

 Requirement:

Keeping in view the above facts and figures, analyze how would this government spending affect the income and consumption of the people of Kenya.

Note:

For acquiring the relevant knowledge, do not rely only on handouts but also watch the course video lectures and read additional material available online or in any other mode.

Important Instructions:

• Your discussion must be based on logical facts.
• The GDB will open and close on above specified date and time. Please note that no grace day or extra time will be given for posting comments on GDB.
• Use the font style “Times New Roman” and font size “12”.
• Your answer should be relevant to the topic i.e. clear and concise.
• Do not copy or exchange your answer with other students. Two identical / copied comments will be marked Zero (0) and may damage your grade in the course.
• Books, websites and other reading material may be consulted before posting your comments; but copying or reproducing the text from books, websites and other reading materials is strictly prohibited. Such comments will be marked as Zero (0) even if you provide references.
• You should post your answer on the Graded Discussion Board (GDB), not on the Moderated Discussion Board (MDB). Both will run parallel to each other during the time specified above. Therefore, due care will be needed.
• Obnoxious or ignoble answer should be strictly avoided.
• You cannot participate in the discussion after the due date via email.
• Questions / queries related to the content of the GDB, which may be posted by the students on MDB or via e-mail, will not be replied till the due date of GDB is over.
• For planning your semester activities in an organized manner, you are advised to view schedule of upcoming Assignments, Quizzes and GDBs in the overview tab of the course website on VU-LMS.

Note related to load shedding: Please be proactive

Dear students!

As you know that Pre Mid-Term semester activities have started and load shedding problem is also prevailing in our country. Keeping in view the fact, you all are advised to post your activities as early as possible without waiting for the due date. For your convenience; activity schedule has already been uploaded on VULMS for the current semester, therefore no excuse will be entertained after due date of assignments, quizzes or GDBs.

GDB Solution Eco 403

Government spending:
45% on Infrastructure
35% on Education, Health, Welfare of public etc.
20% on Defense & Weapons
OTHER MEASURES OF INCOME Net National Product (NNP) It is GNP adjusted for depreciation. NNP = GNP – Depreciation National Income (NI) NI = NNP – Indirect Business Taxes Personal Income (PI) = NI – Corporate Profits – Social Insurance Contributions – Net Interest + Dividends + Govt. transfers to Individuals + Personal Interest Income Disposable Personal Income (DPI) = PI - Tax CONSUMER PRICE INDEX (CPI) CPI is a measure of the overall level of prices. It is published by the Federal Bureau of Statistics. It is used to: • Track changes in the typical household’s cost of living. • Adjust many contracts for inflation (i.e. “COLAs”: Cost of Living Adjustments). • Allow comparisons of dollar figures from different years. HOW TO CONSTRUCT THE CPI 1. Survey consumers to determine composition of the typical consumer’s “basket” of goods. 2. Every month, collect data on prices of all items in the basket; compute cost of basket 3. CPI in any month equals Cost of basket in that  month 100 Cost of basket in base period