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ECO10004 - Economic Principles - Business Cycle and Aggregate Demand & Supply - Economics Assessment Answer
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Subject Code: ECO10004
Internal Code: E_AI_DIBC_BDE
Task 7: Business Cycle and Aggregate Demand & Supply
1. Starting from long-run equilibrium, use the basic (static) aggregate demand and aggregate supply diagram to show what happens in both the short run and the long run when there is an increase in consumer confidence. Explain your diagram.
Explain how each of the following events in questions 2 and 3 would affect the aggregate demand curve. No graph required
2. Domestic prices decrease, which decreases interest rates.
3. Lower levels of investment by businesses.
4. Consider the situation where there has been a decline in real GDP growth rates, inflation, and employment rates. What part of the business cycle do you think the economy is currently in? what other indicators could you use to confirm this?
Read the following excerpt and answer the following question
China wants its middle class to spend big ... but they have bills to pay
China’s middle class is something of a mythical entity, with wide-ranging estimates of its size and economic power. Optimists believe a large and growing middle class has the ability to lift China and even the world to a more prosperous level, while pessimists foresee an increasingly burdened group that could cause the economy to stagnate and even lead to political chaos.
Beijing wants the middle class to come to the rescue of China’s economy. But rising costs, mounting household debt, worries about their future income as the economy slows and doubts over whether the government can adequately provide for the ageing population have made consumers cautious. In many cases, they are doing the opposite of what the government wants and pulling back from spending. Whether this so-called consumption downgrade is broad-based – and a threat to Beijing’s economic plans – or not is a matter of intense debate in Chinese policymaking circles. But it is clear that many in China’s middle class are struggling to make ends meet.
China is now betting that its middle class – the largest in the world with more than 400 million consumers, according to the authorities’ estimate – will increase their discretionary spending on products and services and help stabilise the economy amid the trade war with the United States. The National Development and Reform Commission, the government’s powerful planning agency, last month announced that it had organised a special forum to study increasing salaries for lower-middle, middle- and upper-middle income groups, whose average annual individual disposable earnings range from 13,843 yuan to 34,547 yuan.
Economics Assessment Answer
TASK: 1. Suppose 1 800 000 people are employed, 40 000 people are unemployed, and an additional 250 000 people are not in the labour force but are of working age. What is the formula for the unemployment rate? Calculate the unemployment rate and briefly explain how you did this. What is the formula for the labour force participation rate? Calculate the labour force participation rate and briefly explain how you did this. 2. Calculate the year-end (or annual) inflation rate for the March 2016 quarter to two decimal places. Show all workings including the formula used. 3. Using excel calculate the year-end inflation rate for each quarter for the period March 2010 to March 2018. Paste your spreadsheet with the answers into the assignment. 4. Using Excel, prepare a graph of the year-end inflation rate for each quarter for the period March 2010 to March 2018. Paste your graph into the assignment. Make sure you carefully label your graph including an appropriate title, axis labels and legend. 5. Explain why inflation make nominal GDP a poor measure of the increase in total production from one year to the next? 6. Suppose that a very simple economy produces three goods: pizzas, haircuts and backpacks. Suppose the quantities produced and their corresponding prices for 2015 and 2019 are as shown in the table. Use the information in the table to compute nominal GDP in the year 2019. Calculate real GDP in 2019 assuming the base year is 2015. Compare and explain the two results.
Task 7: Business Cycle and Aggregate Demand & Supply
1. Starting from long-run equilibrium, use the basic (static) aggregate demand and aggregate supply diagram to show what happens in both the short run and the long run when there is an increase in consumer confidence. Explain your diagram.
Explain how each of the following events in questions 2 and 3 would affect the aggregate demand curve. No graph required
2. Domestic prices decrease, which decreases interest rates.
3. Lower levels of investment by businesses.
4. Consider the situation where there has been a decline in real GDP growth rates, inflation, and employment rates. What part of the business cycle do you think the economy is currently in? what other indicators could you use to confirm this?
Read the following excerpt and answer the following question
China wants its middle class to spend big ... but they have bills to pay
China’s middle class is something of a mythical entity, with wide-ranging estimates of its size and economic power. Optimists believe a large and growing middle class has the ability to lift China and even the world to a more prosperous level, while pessimists foresee an increasingly burdened group that could cause the economy to stagnate and even lead to political chaos.
Beijing wants the middle class to come to the rescue of China’s economy. But rising costs, mounting household debt, worries about their future income as the economy slows and doubts over whether the government can adequately provide for the ageing population have made consumers cautious. In many cases, they are doing the opposite of what the government wants and pulling back from spending. Whether this so-called consumption downgrade is broad-based – and a threat to Beijing’s economic plans – or not is a matter of intense debate in Chinese policymaking circles. But it is clear that many in China’s middle class are struggling to make ends meet.
China is now betting that its middle class – the largest in the world with more than 400 million consumers, according to the authorities’ estimate – will increase their discretionary spending on products and services and help stabilise the economy amid the trade war with the United States. The National Development and Reform Commission, the government’s powerful planning agency, last month announced that it had organised a special forum to study increasing salaries for lower-middle, middle- and upper-middle income groups, whose average annual individual disposable earnings range from 13,843 yuan to 34,547 yuan.
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