Directions:

Clearly write down on the front page your student number and your tutorial time. Do not use a cover sheet.

Do not include the questions in your answers, just write down the answers. submit your   answers as a pdf file using the appropriate online submission portal on wattle. Make sure you submit it before the 5pm deadline. Text must be typed. Diagrams and algebra may be (neatly) hand.drawn and inserted into the document.

There are three questions in this assignment. You must answer all three. where appropriate, do a little independent research, beyond the basic material covered in the lectures. However, don't go overboard . limit your answers to each question to a maximum of one page (not counting diagrams or references).

Please make sure you read the questions carefully before attempting to answer them. Keep your answers focused and succinct. Avoid waffle. we are looking for answers that display a thorough understanding of the concepts and issues. If they support your exposition, you are welcome to include equations, graphs or tables (which do not count  towards the page limit).

while you are welcome to discuss the questions with your peers, please make sure your    answers are your own! we will check for plagiarism. Pay close attention to referencing, if applicable. It does not matter which referencing style you use, but you need to be consistent.

1    Question

By how much does Australian GDP change in each of the following scenarios? Con- sider the direct efect only, please. Provide a brief explanation (2 points each)

a) The ACT state government increases the subsidy to childcare centres by $1.3 million in total.

b) An Australian cofeeshop owner purchases a deluxe espresso machine from Italy worth $150,000.

c) A daytrader, who is an Australian citizen, sells his shares of Cochlear (an Aus- tralian company) for $100,000 on the New York stock exchange, which he pur- chased for $80,000 only two hours earlier. The broker on the stock exchange who intermediates the trade charges $700 (after conversion into Australian dollars) in commissions.

d) A family in country Victoria purchases the neighbouring farm for $600,000 and now directly consumes all the produce from the farm (worth $50,000) which it used to purchase from the neighbour (prior to the purchase of the farm).

2    Question

In reponse to much criticism about the reliance on GDP measures for public policy, Aotearoa New Zealand’s government announced a few years ago that it will instead focus on wellbeing.  It developed the Living Standards Framework (LSF) which in- cludes a range of indicators for the diferent components making up the LSF. It also issues annual Wellbeing Budgets, setting out the government’s priorities for the bud- get, with the express mission to maximize the welfare of Aotearoa New Zealand’s citizens. The current Australian government has been talking about implementing

similar measures here in Australia.

Now consider the following chart which relates the density of IKEA furniture stores in a country to its 2020 Happiness Index Score:

a) What is the Happiness Index?   How does it compare to other measures of wellbeing? (5 points)

b) In 2008, the Resource Management Act prevented IKEA stores from opening in Aotearoa New Zealand, and none have opened since. (IKEA recently confirmed it had no plans to open stores there.)  Suppose you are working on Aotearoa NZ’s Wellbeing Budget. Your colleague, referring to the above chart, tells you the government should enable, possibly even provide subsidies to, IKEA to open stores in the country, as this would increase overall happiness (wellbeing) of Aotearoa New Zealanders.  What is your response?  Do you agree?  Why? Why not? (7 points)

c) With reference to the above chart, what do you conclude about the usefulness of the LSF, as a replacement of GDP, as a basis for public policy? (7 points)

3    Question

The following question was entered into ChatGPT:

The O伍ce for National Statistics (ONS) in the UK recently proposed a new price index— a CPI that includes housing costs — called the CPIH. The rationale given for this proposal is that

“the biggest cost for most homeowners is the cost of repaying their mortgage. But mortgage interest payments are not included in the CPI, nor are a variety of other costs, such as house depreciation, buildings insurance and ground rent, and house transaction costs such as estate agents’ fees, survey costs and conveyancing charges.  Council tax is not

included in the CPI either. ”

Briefly evaluate this proposal. What are its advantages and disadvantages? Would the CPIH be a useful inflation target measure?

ChatGPT’s answer was as follows:

The proposal to include housing costs in the Consumer Price Index (CPI) through the introduction of the CPIH has both advantages and disadvantages.

Advantages:

1. More accurate measure of inflation: Including housing costs in the CPIH would provide a more accurate measure of inflation since housing is a significant cost for most households.

2. Reflects the cost of owning a home: Including mortgage interest payments, house depreciation, buildings insurance, and ground rent would provide a better reflec- tion of the cost of owning a home.

3. Aligns with international standards: Many other countries already include hous- ing costs in their CPI, so introducing the CPIH would align the UK more closely with international standards.

Disadvantages:

1.  Complex to calculate: Including housing costs in the CPIH would make it more complex to calculate and may require additional data collection.

2. Di伍cult to capture the full cost of housing: Even with the inclusion of housing costs, the CPIH may still not capture the full cost of housing, particularly for those who rent rather than own their homes.