· This assessment has a total 50 marks and consists of data analysis (20 marks total) and technical analysis (30 marks total).

· Please answer all three questions and follow the instructions very carefully.

· Explain your answers concisely and in a clear way. Answers without proper explanation/calculation will receive zero marks.

· There is no need to provide a cover page for this assessment.

· Your submitted assessment in total cannot exceed five pages. These five pages include everything you can think of, such as references, figures, cover page (if you include anyways), excel outputs etc. There will be a 1- mark penalty imposed if you go beyond five pages.

 DATA ANALYSIS

For the data analysis, you will use the Australian data provided in the excel sheet titled `Data for Assessment 3.’ This data covers the period from 1973 to 2019 and includes the following variables:

· Exports of goods and services in current US dollars.

· Imports of goods and services in current US dollars.

· Gross Domestic Product (GDP) in current US dollars.

· Foreign Direct Investment, net inflows (from Balance of Payments) in current US dollars.

To answer the questions below, for each year from 1973 to 2019, you need to calculate FDI Inflow as a percentage of GDP and openness as a percentage of GDP, which are defined as:

FDI Inflow as a percentage of GDP = (^FDIt ) ∗ 100, where

GDPt

���������_t is the FDI inflow to Australia in year t, and

���������_t is the GDP of Australia in year t.

Openness as a percentage = (Esportct+Inportct)*100, where

GDPt

���������������������_t is the exports of goods and services in year t,

���������������������_t is the imports of goods and services in year t, and

���������_t is the GDP of Australia in year t.

QUESTION 1.

(a) Using this data, plot a scatter diagram in excel for the 1973-2019 period by putting FDI Inflow as a percentage of GDP on the vertical axis and Openness as a percentage on the horizontal axis. (7 marks)

(b) Add a linear trendline to your scatter diagram and also indicate the equation for this line together with R2 value. Based on this R2 value, what percentage of the variation in FDI inflow can be explained by the openness? (5 marks)

(c) Using the data analysis tool in excel, do a linear regression analysis by setting FDI Inflow as a percentage of GDP as your dependent variable and Openness as a percentage as your independent variable. Make sure to include a constant (Intercept) to your regression. Indicate and explain whether your intercept and explanatory variable (Openness as a percentage) is significant at 95% confidence interval. Interpret the relationship between FDI inflow and Openness? (8 marks)

Consider the child labour model that we analysed. There are two goods: Rice (R) and Manufactures (M). Consider a rural household. Assume that the only income this household earns comes from rice production. Suppose that each household has

���¯Æ  = 60  hours  of  adult  time  and  ���¯C  = 90    hours  of  children’s  time  to  allocate

between ‘labour’ and ‘leisure’. A rural household can produce one unit of rice with each unit of labour hour. (Recall that household prefers to use up all adult hours for work before using any children’s hours for work.) The price of rice, PR, is always equal to 2. Suppose that the household head’s utility function is given by:

���(���, ���) = min{��� — ���̅, ���— ���¯C } , ���ℎ��������� ��� = min{���, ���} ��������� ���̅  = 45,

where G represents the amount of goods consumption, which is Rice (R) and Manufactures (M) and L represents the amount of leisure consumption. Suppose that the price of manufactures, PM, is equal to 2.

(a) Write down the equation for the rural household’s budget line. Make sure to show your work. (2 marks)

(b) Draw the rural household’s budget line by putting G on the vertical axis and L on the horizontal axis. Make sure to label each axis, indicate the intercepts as well as the slope. (2 marks)

(c) Determine the amount of G and L consumed in equilibrium by the rural household. Make sure to show your work. (2 marks)

(d) Based on your answer in part (c), how many units of rice and manufactures consumed in equilibrium by the rural household? (2 marks)

(e) Illustrate the equilibrium amount of G and L you found in part (c) graphically using the rural household’s budget line from part (a) and rural household’s indifference curve based on its preferences. (2 marks)

(f) Determine the total amount of labour as well as child labour done in equilibrium by the rural household. Make sure to show your work. (2 marks)