In a farway country, banana is the most important crop exported to rest of the world. Data about economic indicators for farway country are given in Table 1. In recent years, a life style change, leading to more consumption of processed food, than raw food has led to reduction in demand for Bananas for consumption. Since the manufacturing sector in FarwayCountry is not developed, the country has to import most of its processed food needs, leading to increase in imports.The Government of Farwaycountry is contemplating inviting foreign investors to establish industries to manufacture banana products such as candies, marshmallows, chips, cookies etc. to give boost to manufacturing sector in the economy. Mr. Brown runs Candie Floss inc., a leadingcompany from Australia that manufactures candies, and sells across the world. Mr. Brown is approached by the External Affairs Minister of Farway Country, inviting him to set up his unit in Farway Country. Mr. Brown is looking for some advice, he approaches AIIM for consultation. As his consultant, write your answers in the space provided: Question 2. 1:What are your general observations about the Macroeconomic condition in Farway Country based on data in Table 1? Write 5 clear observations in the space provided. Question 2. 2:There is a general observation that Consumption expenditure by people in FarwayCountry is increasing, since people in the import business (traders who import goods and sell and earn margins) is flourishing. Do you support this observation based on data? Do you think this observation fits well with Keynesian Consumption Function, as opposed to Permanent Income Hypothesis or Life-cycle Hypothesis (since increase in income from Imports is due to increase in demand for processed foods, which is transitory in nature)?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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In a farway country, banana is the most important crop exported to rest of the world. Data about economic indicators for farway country are given in Table 1.

In recent years, a life style change, leading to more consumption of processed food, than raw food has led to reduction in demand for Bananas for consumption. Since the manufacturing sector in FarwayCountry is not developed, the country has to import most of its processed food needs, leading to increase in imports.The Government of Farwaycountry is contemplating inviting foreign investors to establish industries to manufacture banana products such as candies, marshmallows, chips, cookies etc. to give boost to manufacturing sector in the economy. Mr. Brown runs Candie Floss inc., a leadingcompany from Australia that manufactures candies,

and sells across the world. Mr. Brown is approached by the External Affairs Minister of Farway Country, inviting him to set up his unit in Farway Country. Mr. Brown is looking for some advice, he approaches AIIM for consultation. As his consultant, write your answers in the space provided:

Question 2. 1:What are your general observations about the Macroeconomic condition in Farway Country based on data in Table 1? Write 5 clear observations in the space provided.

Question 2. 2:There is a general observation that Consumption expenditure by people in FarwayCountry is increasing, since people in the import business (traders who import goods and sell and earn margins) is flourishing. Do you support this observation based on data? Do you think this observation fits well with Keynesian Consumption Function, as opposed to Permanent Income Hypothesis or Life-cycle Hypothesis (since increase in income from Imports is due to increase in demand for processed foods, which is transitory in nature)?

Table 1: Macro Economic Indicators of Farway Country (all figures in million
$)
Consumption Investment
Expenditure Expenditure
Year
Government
Expenditure
Exports Imports
2012-13
100
20
50
60
70
2013-14
120
25
60
65
75
2014-15
140
30
70
65
78
2015-16
160
28
40
50
75
2016-17
165
25
30
45
75
2017-18
170
24
20
40
80
2018-19
170
35
80
20
20

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