Global Economy Question Answers

Question 1

Solution:

Real GDP tells about the production of the goods and services of a country. It tells how much a country is producing.  However, to account for the impact of inflation as it affects the goods and services of a country, nominal GDP is calculated; thus, the difference between the real GDP and the nominal GDP is that the nominal GDP is adjusted for inflation.  Thus, the graph also shows that the trend is similar. However, when the inflation premium is added to adjust the real GDP for inflation, the nominal GDP increases; it can be seen from the graph that in 1991, the real GDP witnessed a dip, and in the crisis of 2008, the real GDP also observed a decline, and the Nominal GDP also observed a recession during this period.

Question 2

1. Inflation, consumer prices (annual %)

2. Unemployment, total (% of total labor force)

Figure 2 (Australia)

From the analysis of the graph of Australia, it can be seen that the gross capital formation in the country has remained stable since 1991, and it has also seen a downward shift in 2001 and 2004. Further, the unemployment rate shows a declining trend whereas it took an upward shift after 2008.

Figure 3 (China)

The graph made for Gross capital formation reflects that the country saw an upward trend twice in 1992 and in 2003. However, after 2008, the trend is still positive. On the other hand, there is no change in unemployment, which is almost equal to zero.

Figure 4 (United Kingdom)

The graphical analysis shows that the gross capital formation of the country has seen a decline since 1991; however, there remained no change after that. Further, the unemployment rate of the country shows that there has remained instability in the unemployment rate of the country. It has also seen a decline after 1992 and an upward shift after 2009, however, it started declining after 2011.

Figure 5 (Japan)

The capital formation trend line of the country Japan shows that it has consistently seen a declining trend, whereas the unemployment rate has seen a steady pattern over the years.

Figure 6 (Korea)

The graph shows that the country (Korea) saw two major declines in 1998 and 2009; however, it remained stable after 2011, whereas the unemployment trend saw an increase only in 1998. After that, it remained stable. Further, an analysis of the year 1998 shows that there were a few remarkable events that impacted the variables, such as the deadliest flood, the missile test battle of Yeosu etc.

Question

Analysis

The analysis of the above-mentioned graphs shows that the exchange rates and the trade balance have a direct relationship with each other. When the exchange rates increase, the balance of goods and services gets a positive return and vice versa.

Part B

Question No. 4

According to the aggregate expenditure model Y = C + I + G, when the government introduces a tax cut, the money supply in the economy shall increase to reduce the recessionary effects. Further, as the propensity to consume is 0.2, thus, the fall in the taxes that are 60 billion shall cause the aggregate expenditures to shift up to (=60bn*0.2) 4 billion.

Question No. 5

The decline in the investment expenditure causes to reduction in the economic activity in the country. As it has been seen that the tax cut shall shift the aggregate demand curve upward and to the right, it shall tend to increase the output. The increase in output shall also increase the consumption spending of the people as they shall have more income to spend. Also, the level of investment spending shall also increase. Not only this the increase in the money demand shall increase the interest rates. This will result in reduced consumption as people start saving more and the investment shall decline because the cost of investment will become higher. Thus, to reduce the cost of investment, the central bank must follow the expansionary policy and must focus on a different strategy to achieve this goal so that the cost can be maintained at optimal levels.

Part C

The organization that I have chosen to see the role of a macroeconomist in an institution is the Bank of England. It is a regulator of the commercial banks and serves the banking industry. The bank started as a private bank in 1694 and initially worked as a private bank. Later on, it became a banker to the government and started working independently. The bank became independent so that it could perform its function of setting monetary policy for the country and was freed from political interference. However, the Government still owns the bank. Bank of England also operates under the framework provided by the government.

The bank provides opportunities for young graduates to be a part of it.  The jobs offered also include a proper job description that provides a criterion of the skill set the bank requires the individuals to possess while applying to the organization. Further, for an aspirant for the job in this prestigious organization, there is a test conducted to shortlist the candidates for the interview process and further selection processes. My credentials and the projects I have done while studying shall support me in front of my employer. Further, the score I shall obtain in the test shall also complement my stance. However, while encountering the panel interview, I will make an effort to demonstrate the practical application of the concepts that we have learned during the study. However, it depends on the questions of the employer and what direction I will take.

As mentioned earlier, being a student of economics, we extensively go through the theoretical knowledge, and we also attempt to obtain field experience while making our projects and solving different problems. However, if my skills match the job description offered by the company, there are maximum chances of getting the job. The job that I aspire to obtain requires me to have excellent research skills, good it skills and statistical information. Not only technical knowledge but interpersonal skills are also needed, such as working in teams maintaining productive working relationships, and the ability to work under pressure. Thus, my credentials affirm my technical and interpersonal skills and get validation from the team projects we have done so far. The feedback from the supervisors while I was working as an intern is also complementing in this regard.

References

History, O. (2018). History | Bank of England. [online] Bankofengland.co.uk. Available at: https://www.bankofengland.co.uk/about/history [Accessed 13 Apr. 2018].

2012books.lardbucket.org. (2018). The Aggregate Expenditures Model and Fiscal Policy. [online] Available at: https://2012books.lardbucket.org/books/macroeconomics-principles-v2.0/s25-02-the-aggregate-expenditures-mod.html [Accessed 13 Apr. 2018].

Abs.gov.au. (2018). 5368.0 – International Trade in Goods and Services, Australia, Dec 2017. [online] Available at: http://www.abs.gov.au/AUSSTATS/abs@.nsf/DetailsPage/5368.0Dec%202017?OpenDocument [Accessed 13 Apr. 2018].

Reserve Bank of Australia. (2018). Historical Data | RBA. [online] Available at: https://www.rba.gov.au/statistics/historical-data.html [Accessed 13 Apr. 2018].

Data.worldbank.org. (2018). Indicators | Data. [online] Available at: https://data.worldbank.org/indicator [Accessed 13 Apr. 2018].

Abs.gov.au. (2018). 5204.0 – Australian System of National Accounts, 2016-17. [online] Available at: http://www.abs.gov.au/AUSSTATS/abs@.nsf/DetailsPage/5204.02016-17?OpenDocument [Accessed 13 Apr. 2018].