EC101:

PRINCIPLES OF
MACROECONOMICS
RESEARCH ASSIGNMENT PROJECT

SEMESTER 2, 2020

Tutor: Esiteri Loaloavura Day and Time: Tuesdays 3-4pm

Mode: Face to Face

Group Members:
1. Tetaeka Meera-S11190273
2. Saukitoga Salata-S11185908
3. Camaibulu Laisa-S11185941
4. Namai Tekouea -S11179795
5. Vaniqi Ro Bola- S11185990 (submitted on moodle)
1.0 Introduction
Macroeconomic indicators are tools used to diagnose the wellbeing of an economy. There are many tools
used by economists such as the use of GDP growth rates, rate of unemployment, savings, interest rates
and so forth. This research will be using three macroeconomic aggregate indicators, the reasons for using
these indicators as well as applying economic theories and principles to measure and analyze the
economic performance of Fiji.

This project embarks on using the latest data available to analyze the macroeconomic performance for Fiji
over the 10 years using GDP, rate of unemployment and inflation. Economic indicators that are used are
important to consumers, investors and the government to scrutinize the performance of the economy. An
economic indicator is only useful when one interprets it correctly. Hence, relying on one economic
indicator alone is not enough to determine the condition of an economy.

In addition, a number of economic theories relating to the use of aggregate economic indicator. In this
project, the economic concepts that are used are; the multiplier effect, expansionary fiscal policy, and
cyclical unemployment that relates to business cycle as well as purchasing power. Economists to interpret
situations in an economy using many other underlying economic theories and concepts.

To conclude, interpretation of national data using aggregate indicators is key in tracking the performance
of any economy such as Fiji. Macroeconomic aggregate indicators affects everyone and sets the
foundation for analysis of the techniques that drives macroeconomic variables in Fiji.

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2.0 Aggregate Indicators
2.1.1 Gross Domestic Product for Fiji:
Gross Domestic Product (GDP) is one of the most important aggregate indicators for any country
including Fiji. Gross Domestic Product is the market value of all final goods and services
produced within a country in a given period.

2.1.2 Why GDP is used?

GDP is an important indicator that tells people whether the output is growing or shrinking at
current prices that is nominal GDP. GDP is also measured at constant prices known as real GDP
and is used in measuring the economic performance for a country because it is adjusted for
inflation. Total value of output of goods and services like education, health services, and
production of all other goods and services produced in a given financial year is GDP. GDP is
important because it gives information about how an economy is performing or it gives
indication about the health of an economy. Hence, an increase in real GDP is a good indicator
signifying that the economy is doing well.

2.1.3 Application of Economic Theory and Principles to Analyze the Fijian Economy:

GROSS DOMESTIC PRODUCT 2011 BASE

Period Current Basic Price Constant Basic Price
Nominal Growth of Estimated Nominal Growth of Real GDP Growth of
GDP GDP Mid-Year GDP per GDP per ($m) GDP
($M) (Nominal) Population capita capita (Real)
(%) ('000) ($) (%) (%)
2011 6,768.5 n.a 852.5 7,939.6 n.a 5,738.8 n.a
2012 7,109.5 5.0 856.8 8,298.2 4.5 5,819.8 1.4
2013 7,715.7 8.5 860.1 8,971.2 8.1 6,095.4 4.7
2014 8,462.4 9.7 863.9 9,795.7 9.2 6,436.9 5.6

GROSS DOMESTIC PRODUCT 2014 BASE

Period Current Basic Price Constant Basic Price
Nominal Growth of Estimated Nominal Growth of Real GDP Growth of
GDP GDP Mid-Year GDP per GDP per ($m) GDP
($M) (Nominal) Population capita capita (Real)
(%) ('000) ($) (%) (%)
2014 9,167.0 n.a 863.9 10,611.3 n.a 9,167.0 n.a
2015 9,822.1 7.1 867.6 11,321.2 6.7 9,594.6 4.7
2016(r) 10,327.3 5.1 871.3 11,852.3 4.7 9,835.4 2.5
2017(r) 11,065.0 7.1 884.9 12,504.4 5.5 10,369.0 5.4

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 2018(p) 11,557.4 4.5 890.2 12,983.0 3.8 10,734.6 3.5
2019(e) 11,702.4 1.3 895.5 13,067.4 0.7 10,592.3 -1.3
2020(f) 9,255.1 -20.9 900.9 10,273.0 -21.4 8,293.7 -21.7
2021(f) 10,628.5 14.8 906.3 11,727.1 14.2 9,463.6 14.1
2022(f) 11,531.5 8.5 911.8 12,647.6 7.8 10,079.9 6.5
Figure 1: Information for Fiji’s growth rate for the past 10 years Source: Reserve Bank of Fiji

The contraction in 2019 was driven by the negative growth contributions in the following industries:
 Transport and Storage contributed -0.5 percentage points;
 Public Administration and Defense contributed -0.3 percentage points;
 Manufacturing contributed -0.2 percentage points; and
 Information and Communication contributed -0.1 percentage points.
Sources: Fiji Bureau of Statistics and Macroeconomic Committee

For the last 10 years, Fiji’s growth of real GDP that used 2014 as a base year has been
fluctuating with 2019 being the latest estimated real GDP that recorded a decline. Real GDP that
used 2011 as a base year has been increasing proportionately which means that there were more
economic activities and growth in this phase.
The real GDP of Fiji in 2019 estimated which stands at around $10.5 million Fijian dollars has
been a decline by 1.3% from real GDP in 2018 which is a negative sign signifying that Fiji’s
output is declining and a shrink in the economy. Various sectors in the Fijian economy in 2019
performed below par expectations which resulted in this decline; this was the transport and
storage sector which dropped by 0.5% from 2018. Public administration and defense contributed
less by 0.3% towards GDP while manufacturing, information, and communication contributed
below by 0.2% and 0.1% respectively. The decline in returns from the four sectors stated above
for Fiji resulted in the decrease in economic activities and a decline in real GDP, which states
that the economy has performed below. Increasing output in other sectors like increasing returns
from the tourism sector can assist in covering up for this loss. This will in turn, increase
employment opportunities, investment, and money supply to stimulate the economic activities in
Fiji and contribute to the increase in real GDP, referred to as the multiplier effect. As such,
government can use expansionary fiscal policy to stimulate the economy and increase real GDP
by increasing government spending and decreasing tax revenue. Overall for the last 10 years
from 2011-2020, Fiji’s average growth in GDP has incurred a growth of 3.2% which is a positive

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sign indicating that more economic activities and developments were taking place in the
economy and hopes to continue in the future to arouse real GDP.
2.2 Unemplpoyment Rate in Fiji

S
ource: https://www.macrotrends.net/countries/FJI/fiji/unemployment-rate
Figure 2: Information on the unemployment rate in Fiji over the past 10 years.
2.2.1 Unemployment Rate:

Unemployment rate is a key indicator for measuring a country’s labour market. It shows the rate
of people without job in the labour force, these includes those that are willing to work but cannot
seem to find job. When there is an increase in unemployment this leads to a loss in the country’s
contribution towards the economy as a whole in terms of production. Unemployment affects the
disposable income of family and erodes purchasing power.

2.2.2 Why is Unemployment Rate used?

Unemployment rate is used because it gives information on the number of people that are in the
labour force who are not working but actively looking for work. Unemployment is used as a
measure of economic performance in a particular country, with the increase in unemployment the
country’s contribution towards the economy will decline because those people that could have
produced goods and services have been laid off due to some reasons. With the decline in the
production of goods and services it leads to a decrease in the Gross Domestic Production (GDP)
thus leads to a decrease in the economic performance.

2.2.3 Application of Economic Theory and Principles to analyse the Fijian Economy.

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For the last 10 years it is evident through the figure provided that the unemployment rate in Fiji
has been fluctuating. The unemployment rate for Fiji in 2009 was 4.18% which had increased by
0.27% to 2013 which was 4.45% thus is a positive sign signifying that there were a lot of job
opportunities available which allowed a numerous amount of people in the labour force to get
jobs, thus a boost in production of goods and services which leads to an increase in economic
growth. The unemployment rate for Fiji in 2013 was 4.45% which had decreased by 0.35% to
2019 which was 4.10% thus, is a negative sign signifying that there were less job opportunities
available compared to previous years these is due to lower consumer demands creating cyclical
unemployment. Cyclical unemployment is directly related to the business cycle of a particular
industry, when companies profit falls due to a decline in demand they must lay off workers
because they will not expect sales to increase anytime soon, thus indicating that the economy is
performing below average and inefficient which leads to lower output and incomes. In order for
the economy to grow, the principle of incentive must be applied because people respond to
incentives meaning that in order for companies to gain more profit they should provide more job
opportunities because an increase in employment will increase consumer demand thus enabling
companies to increase production.

2.3 Inflation Rate in Fiji

Source: https://www.macrotrends.net/countries/FJI/fiji/inflation-rate-cpi#
Figure 3: Information on inflation rate in Fiji over the past 10 years
2.3.1 Inflation:

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Inflation is the general increase in prices of goods and services. It determines the rate at which
the average price level of a basket of selected goods and services in an economy increases over a
particular period. Expressed in percentage.

2.3.2 Why is Inflation Rate Used?

Inflation is the rise in prices. It is an important indicator as it takes into account the general
increase or decrease in the economies price market and reflects the purchasing power of
households and the nation. In addition, Inflation has a relationship with GDP (Gross Domestic
Production) as it affects the economy’s productions status, affects the value of money in terms of
purchasing power, the interest rates, cost of living as it reflects peoples standard of living and
other economic activities.

2.3.3 Application of Economic Theory and Principles to analyses the Fijian Economy.

From the years 2009 to 2019, it seen that the inflation rate over the 10 years has been fluctuating.
The inflation rate for Fiji in 2009 was 3.13% which then increased by 2.3% in 2011 which was
7.28% this can be seen as a disadvantage for the economy. It would mean that prices increased
over the 2-year period, thus a decrease in the currency value as consumers would consume less
goods and services. This loss in purchasing power would likely affect the economy’s growth and
people standards of living. However, in the following year inflation rate decreased by 3.45% thus
2012 had inflation rate of 3.42% that continually decreased until 2014 with inflation rate of
0.52%. This would have a positive effect on the economy, when inflation rate decreases this
would mean there is a general decrease in prices that would lead to people being able to purchase
more, which would increase GDP (gross domestic production) and then lead to economic
growth. The following years from 2014 to 2016, there was an increase in inflation rate by 3.34%
then decrease in 2017 by 0.51%. In 2018 inflation rate was 4.8% that increased by 1.45% from
the previous year then drastically decreased to 1.77% in 2019. One factor that would cause these
changes would be the governments demand for printing of more money that would result in an
increase in inflation rate with more money in the economy leads to increase in inflation. With the
principle prices rise when the government prints too much money, in long run the faster the
government creates money, the greater the inflation rate. However, in the short run tradeoff
between unemployment and inflation where over a period of two years, many economic factors
are able to push unemployment and inflation in opposite directions

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3.0 Conclusion

This project has analyzed Fiji’s economic performance using the three macroeconomic indicators
that is GDP, unemployment and inflation. GDP is one of the main key economic indicator for
Fiji as it measures the total value of all goods and services produced within a country in a
financial year. However, Fiji recorded a decline in real GDP in the year 2019 with many factors
to consider and this is a place for improvement in the future. Unemployment rate for Fiji has
recorded a decline also over the years with more and more people looking for jobs and are
unable to find one. Investment by government and firms into the economy could help create jobs
for young people and decrease unemployment rate. Additionally, inflation has been fluctuating
over the years with many economic factors in consideration, thus, decreasing the purchasing
power of consumers.

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3.0 Introduction
Kiribati economy is another chosen country to investigate in regards to those three
macroeconomic variables shown in part one which basically on Gross Domestic Products (GDP),
Inflation and unemployment rate. From those three variables shown in part one, we choose the
Gross Domestic Products (GDP) to do comparison.

In part, two of this project, the discussion will focus on the comparison of the Gross Domestic
Products (GDP) between the two economies that is Kiribati and Fiji by using the year of 2010 to
2019. The comparison will be focus on the variable that we select from those three variables
provided in part one, which is Gross Domestic Products (GDP) to explain on their similarities
and differences with their possible reasons between those two economies.

Related to our comparison on the Gross Domestics Products between the two economies, we
have three feasible policy suggested to our comparison which is fiscal policy, monetary policy
and the last one is exchange rate policy.

This part of the project consist of the report focuses on the Kiribati economy and the comparison
of the selection macroeconomics variable which reflect the overview of Kiribati economics
performance regarding to the comparison of the Gross Domestic Product (GDP) between Kiribati
and Fiji in the year of 2010 to 2019.

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4.0 The Gross Domestic Products of Kiribati and Fiji for the year 2010 to 2019.

Figure 4: Information for Nominal GDP for Fiji and Kiribati from 2010-2019

year Fiji Kiribati

2010 7.3 0.16 gdp f or fi ji and kir ibati f r om
2011 12.35 0.18 2010-2019
14
2012 5 0.19 12 Fiji Column1

2013 8.5 0.19 10

2014 9.7 0.18 GDP % 8

6
2015 7.1 0.17
4
2016 5.1 0.18
2
2017 7.1 0.19 0
2018 4.5 0.19 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

2019 1.3 0.18 Year range

Source: worldbank.org

In relation to the above graph, there is shows the different value of the GDP at current prices for
both countries which are Fiji and Kiribati. The blue color indicates the value of GDP for Fiji
from the year 2010 up to 2019 whereas the orange color represents Kiribati GDP at the same
year. Comparing the GDP of Kiribati and the GDP of Fiji from the above graph, there is a higher
GDP in Fiji compared with the GDP in Kiribati. For Fiji is shows that from 2010 to 2019 there is
an increase-decrease and increase at the end of 2019 which it can called fluctuated. Kiribati is
also in a fluctuating state for the following years.

 Discussion
4.1 Gross Domestic Product (GDP)

4.1.1 Currency and its exchange rate ($)

Firstly, the different between Kiribati’s GDP and Fiji’s GDP is their currency. Currency is the
medium of exchange for goods and services. In short, it is money, typically issued by a
government in the form of paper or coins and generally accepted as a means of payment at its

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face value. For instance, Kiribati dollar does not have its own banknotes, instead the uses of
Australian as its official currency, whereas the Fiji dollar measured in its own banknotes. Thus
the main different here is the price of exchange rate. As we convert the Australian currency,
which is $1 into the Fijian dollar, has come up to $1.52 Fijian dollar, and when we convert the
Fijian dollar which is $1 to the Australian dollar, it has come up to 0.66 cents

Figure 5: Information for Fiji and Kiribati’s currency against Australian dollars.

Convert AUD to FJD Convert the FJD to AUD

AUD FJD FJD AUD
1 AUD 1.51944 FJD 1 FJD 0.658138 AUD

5 AUD 7.59719 FJD 5 FJD 3.29069 AUD

10 AUD 15.1944 FJD 10 FJD 6.58138 AUD

25 AUD 37.9860 FJD 25 FJD 16.4534 AUD

50 AUD 75.9719 FJD 50 FJD 32.9069 AUD

100 AUD 151.944 FJD 100 FJD 65.8138 AUD

500 AUD 759.719 FJD 500 FJD 329.069 AUD

1000 AUD 1,519.44 FJD 1000 FJD 658.138 AUD

Kiribati’s currency in Australia dollar has a higher price of exchange rate than Fijian currency,
because there is a power of exchange rate in any countries related to the increase in standard
development and the increase in economic growth, which improve the international
competitiveness of Australia’s export and import competing industries.

4.1.2 GDP per capita

Secondly, the difference between Kiribati’s GDP and Fiji’s GDP is in their GDP per capita. The
gross domestic product per capita is a calculation of the economics production of a country that
accounts for people in an economy. It divides the country’s gross domestic product by its total

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population. For instance, looking at the GDP per capita for Kiribati in the year 2018 is about
1625.41973465 USD, whereas in Fiji the GDP per capital is 6267.24000349 USD.

 GDP per capita calculation

Gross Domestic Product per capita = Gross domestic product divide population

188.3 / 115,847 = 1625.41973465 USD (Kiribati)

5.537 billion / 883483 = 6267.24000349 USD (Fiji)

Figure 6: The graph to show the difference of GDP per capita between those two economies.
(Fiji and Kiribati)

GDP PER CAPITA for 2018

8,000.00
Amount OF GDP

6,266.97
6,000.00
4,000.00
1,625.29
2,000.00
0.00
Kiribati Fiji
COUNTRIES

Source: https://datacommons.org/place/country/KIR

As it mentioned in the graph above, Fiji economy has the largest number of GDP per capita than
Kiribati because Fiji economy is one of the most developed country in the Pacific Islands.
However, it remains a developing nation with a broad agricultural subsistence market. It relies
heavily on the sugar industry, as well as the travel and tourism sectors and the fishing industry.

5.0 Similarities

5.1 Measure by the international dollar by using Purchasing Power Parity.

Firstly, the similarities between the above GDP of Kiribati and the GDP of Fiji calculated by the
international dollar by using the Purchasing Power Parity (PPP) process, which accounts for

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variations in local rates and living costs in order to compared actual income and living conditions
between countries. The GDP of Kiribati and the GDP of Fiji converted to international dollars
using the purchasing power parity rates, which have the same purchasing power over GDP as a
U.S dollar has in the United States. Kiribati and Fiji economies are used the Purchasing Power
Parity (PPP), in order to allow us an alternative exchange rate to use to restate the GDP of one
country or economy in terms of another on the base of willingness of each currency to purchase
the same Purchasing Power Parity (PPP). Thus, the GDPs of both economies measured by the
international dollar by using Purchasing Power Parity (PPP), in order to provide us an alternative
basket of goods and service exchange rate.

5.2 Based on the monetary value of goods and services

Secondly, the similarity founded above between Kiribati’s GDP and Fiji’s GDP based on the
monetary value of goods and services, which accounts for the inflation. By increase, the prices
may appear to raise the GDP of a country, but this does not generally reflect any change in the
quantity or quality of the products and services produced. Moreover, by looking at the nominal
GDP of an economy, one cannot determine the increase in figure because it simply does not
accounts for inflation. Therefore, the GDP in Kiribati and the GDP in Fiji based on the monetary
value of goods and services, so that the GDP of both economies are easy to measure from the
one year to another and see if there is any real growth.

6.0 Possible policies suggestions:

In these projects, one of the initiatives policy that is focused on the exchange rate. The policy on
the exchange rates is one of the macroeconomic policies dealing with the calculation of the value
of the domestic currency in comparison to other currencies. As we stated above under the
differences of the GDP in Kiribati and Fiji, Kiribati as in Australian dollar have a higher
exchange rate than Fiji, while they are encouraged exporting more to other countries. However,
as we can see that Kiribati has a higher currency than Fiji but due to their GDP, Kiribati is less
than Fiji. Thus the exchange rate policy should be intervene into the country of Kiribati, so that

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it can help to keep the higher currency rate in order to increase the number of exports of goods,
services, and improve the living standard to maximize the Gross Domestic Products.

Another possible policy suggested is the monetary policy. Monetary policy is referring to the
formulated based on inputs gathered from a variety of sources. For instance, the monetary
authority may look at macroeconomics numbers such as Gross Domestic Products (GDP) and
inflation, growth rate and so forth. This strategy plays an important part in mitigating economic
slowdowns and in reducing infrastructure cost as well. For that cause, lower interest rates will
raise both households and business investment, stimulating the economy. Therefore, this policy
should be intervene in Kiribati economy because it can keep unemployment low, rise in GDP
and maintain the foreign exchange.

The last policy, known as the fiscal policy. In order to control and manipulate the economy of a
country, fiscal policy is the means by which a government changes its expenditure levels and tax
rates. A central bank affects the money supply of a country by the sister monetary policy
approach. Kiribati is one of the poorest and most remote Pacific nation. This fiscal policy should
be include in Kiribati government plan or budget in order to achieve macroeconomic objectives,
such as full employment not only of this but it have to sustained economic growth and stable the
price level stability.

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7.0 Conclusion

In conclusion, after the research, it is clearly shown that Kiribati economy experience the lower
Gross Domestic Product given in the following year 2010 to 2019. After our comparison for the
Gross Domestic Product of Kiribati and Fiji economies, we realize that Fiji economies have an
increase in Gross Domestic Product compared with the Kiribati economy since the year of 2010
to 2019. However, because of the deceasing in Gross Domestic Product of Kiribati economy,
there are macroeconomics policies such as exchange rate policy, monetary policy and fiscal
policy to be intervene in this economy so that it can help to boost up the Gross Domestic
Products in Kiribati. By applying those policies in this economy, it will help the poor economies
like Kiribati to improve their living standard and also to increase their economic growth and
cause the increase in Gross Domestic Products of this economy.

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8.0 Bibliography

Analytics, M., 2020. Fiji Nominal Gross Domestic Product | Moody's Analytics. [Online]
Economy.com. Available at: <https://www.economy.com/fiji/nominal-gross-domestic-
product> [Accessed 26 October 2020].

Currency7.com. 2020. Currency Converter · Fiji Dollar (FJD) To Australian Dollar (AUD) |
Foreign Exchange Conversion - Money Calculator. [Online] Available at:
<http://currency7.com/fjd-to-aud-exchange-rate-converter> [Accessed 26 October 2020].

En.wikipedia.org. 2020. Economy of Kiribati. [Online] Available at:

<https://en.wikipedia.org/wiki/Economy_of_Kiribati> [Accessed 26 October 2020].

FIJI’S GROSS DOMESTIC PRODUCT (GDP) 2019. [Report] Archive, Fiji's Data Bureau,
Suva.
Datacommons.org. 2020. Kiribati - Place Explorer - Data Commons. [Online] Available at:
<https://datacommons.org/place/country/KIR> [Accessed 26 October 2020].

Macrotrends.net. 2020. Fiji Unemployment Rate 1991-2020. [Online] Available at:

<https://www.macrotrends.net/countries/FJI/fiji/unemployment-rate> [Accessed 26
October 2020].

Macrotrends.net. 2020. Fiji -2020. [Online] Available at:

<https: //www.macrotrends.net/countries/FJI/fiji/inflation-rate-cpi.> [Accessed 26
October 2020].

Reserve Bank of Fiji. 2020. National Summary Data Page - Reserve Bank of Fiji. [Online]
Available at: <https://www.rbf.gov.fj/statistics/nsdp/> [Accessed 26 October 2020].

Tradingeconomics.com. 2020. Kiribati GDP | 1970-2019 Data | 2020-2022 Forecast | Historical |

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Chart | News. [Online] Available at: <https://tradingeconomics.com/kiribati/gdp>
[Accessed 26 October 2020].

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