Rewrite the paper below with no plagiarism. I will list instructions but you can just go off the paper that is listed. INSTRUCTIONS: CLA 1 Comprehensive Learning Assessment I – CLO 2, CLO 4, CLO 7 A-Please answer the following questions: 1-How do economists use a basket of goods and services to measure the price level? 2-Why does “substitution bias” arise if we calculate the inflation rate based on a fixed basket of goods? 3-Why does the “quality/new goods bias” arise if we calculate the inflation rate based on a fixed basket of goods? B-Explain briefly whether each of the following would be more likely to lead to a higher level of trade for an economy, or a greater imbalance of trade for an economy. a. Living in an especially large country b. Having a domestic investment rate much higher than the domestic savings rate c. Having many other large economies geographically nearby d. Having an especially large budget deficit e. Having countries with a tradition of strong protectionist legislation shutting out imports C-. In 2001, the United Kingdom′s economy exported goods worth £192 billion and services worth another £77 billion. It imported goods worth £225 billion and services worth £66 billion. Receipts of income from abroad were £140 billion while income payments going abroad were £131 billion. Government transfers from the United Kingdom to the rest of the world were £23 billion, while various U.K government agencies received payments of £16 billion from the rest of the world. a. Calculate the U.K. merchandise trade deficit for 2001. b. Calculate the current account balance for 2001. c. Explain how you decided whether payments on foreign investment and government transfers counted on the positive or the negative side of the current account balance for the United Kingdom in 2001. PAPER: CLA1 – Comprehensive Learning Assessment Virginia Brooke Scheidle Westcliff University BUS311: Principles of Macroeconomics Professor Baker Economy – Macroeconomics In this reading one will learn about different factors in the driving economy that also have a role in macroeconomics. The economy is known to be the amount of resources and wealth a region or country has, in terms of the levels of production and consumption of goods and services. Throughout this assignment, the topics being covered will include how economists use basket of goods and services to measure the price level, substitution bias and how the calculation of an inflated rate influences the fixed basket of goods. Among these topics, there will also be examples of how certain scenarios play a different role in affecting the trade for the economy and also a desсrіption on how to calculate the merchandise trade. Basket of Goods A basket of goods is known as a fixed collection of consumer goods and services whose price is determined on a regular basis, such as monthly or annually (Greenlaw & Shapiro, 2021). Economists utilize the consumer price index, or CPI, to determine the price level. The CPI is calculated using the prices of a predetermined basket of goods and services. This is used to keep track of the price of a basket of goods and services over time. Substitution arises when one calculates the inflation rate based on a fixed basket of goods and services. This is because people substitute cheaper goods and services in place of those goods and services that are more expensive. When the inflation rate is calculated using a set basket of goods and services, substitution occurs. This is because individuals replace less costly products and services for more expensive goods and services (Dutkowsky & Foote, 1992). The ″quality/new goods bias″ occurs when calculating the inflation rate with a fixed basket of products, since the ″quality/new goods bias″ overstates the inflation rate when using a fixed basket of goods over time. If the price of an item or object does not change as a result of the adjustment, the item is still cheaper than it was before. Trade for Economy Each situation is a prime example of how trade for the economy can be affected every day. Living in a large country would have a higher level of trade for the economy because larger countries have larger volumes of internal trade and larger economies of scale. An imbalance between domestic investment and domestic saving, which includes both government and private savings, will always result in a trade imbalance (Rodrik, 1995). Thus, creating a higher trade imbalance for the economy. As production increases at a faster rate than demand, it will affect trade and create an imbalance in the economy. For the third scenario, having a large number of big economies geographically close enhances or increases trade. On the other hand, it has minimal effect on a trade imbalance. A large budget deficit indicates a high need for financial capital, which, according to national saving and investment, makes it somewhat more likely that an inflow of foreign capital would be required. Meaning a significant trade imbalance for a trade deficit country. Having countries with a tradition of strong protectionist legislation shutting out imports will most likely cause an imbalance. This is due to the fact that shutting out imports caused the density of the impact to not be accurately measured since, in order to measure the impact, one must have both imports and exports. Calculations To calculate the U.K. merchandise trade deficit for 2001, one must first plug in the given values to the equation that goes as follows; merchandise trade deficit ＝ import of goods – export of goods. The import of goods is £225 billion – the export of goods which is £192 billion. After solving, the merchandise trade deficit is £33 billion. The next step is to calculate the current trade account balance for the same year. The formula for this equation is net exports + net income from abroad + net transfers. This formula can be broken down into smaller formulas in order to find the current account trade balance. The first being exports of goods, 192, + export of services, 77, equals total exports, 269. The second is imports of goods, 225, + imports of services, 66, is equal to total imports, 291. The third step is to take the export of goods and services, 269, and subtract them by the import of goods and services, 291, to get a -22. The fourth step is to take the income received from abroad, 140, and subtract it from the payment made to abroad, 131, which gives one the total net income from abroad of 9. Lastly, to find the net transfer, one should subtract government transfer to abroad, 16, form government received transfers from abroad, 23, which gives the outcome of -7. With the equated values from the equations stated above, one will then plug them into the equation of net exports, -22, plus net income from abroad, 9, + net transfers, -7, in order to find the current account trade balance, -20. Payments made of foreign investments and current transfers and considered to be on the positive side of the current account balance. This is due to the fact that services are received from abroad in exchange of payments being made. On the other hand, government transfers are a one way transfer, meaning nothing is received in exchange. Conclusion In conclusion, there are many different factors that play a role in a given economy. One is now knowledgeable on the substitution bias and how economists use the basket of goods and services to measure the price level. One is also aware of how the calculation of an inflated rate influences the fixed basket of goods. There is also a better understanding of how certain scenarios affect the trade for the economy and how to calculate the merchandise trade. Reference Dutkowsky, D. H., & Foote, W. G. (1992). Intertemporal substitution in macroeconomics: Consumption, labor supply, and money demand. The review of economics and statistics, 333-338. Greenlaw, Steve A. & Shapiro, David. (2020). Principles of macroeconomics (2e). OpenStax Rodrik, D. (1995). Political economy of trade policy. Handbook of international economics, 3, 1457-1494.
