Economics Principles: Consumer Confidence, Aggregate Demand, Inflation Rate

This article discusses the impact of consumer confidence on aggregate demand, factors affecting aggregate demand, and inflation rate calculation. It also covers the impact of economic contraction on the economy.

Economics principles
Name of the student
Name of the university
Author note

Answer1)
Unemployment benefits is generally not taken in to
account for calculating the national income. So, the
unemployment benefits of amount $500 per annum
will not be added while calculating the national
income. The reason behind his is that while
calculating the national income the unemployment
benefits is not taken in to account.
Answer 2)
The rate of inflation is 21.7%
The rate of inflation is calculated by the formula:
Quart
er
CPI Inflation
rate
Mar-
09
92.5
Jun-
09
92.9 0.4324324
32
Sep-
09
93.8 0.9687836
38
Dec-
09
94.3 0.5330490
41
Mar-
10
95.2 0.9544008
48
Jun-
10
95.8 0.6302521
01
Sep-
10
96.5 0.7306889
35
Dec-
10
96.9 0.4145077
72
Mar-
11
98.3 1.4447884
42
Jun-
11
99.2 0.9155645
98
Sep-
11
99.8 0.6048387
1
Dec-
11
99.8 0
Mar-
12
99.9 0.1002004
01
Jun-
12
100.
4
0.5005005
01

Mar-09
Aug-09
Jan-10
Jun-10
Nov-10
Apr-11
Sep-11
Feb-12
Jul-12
Dec-12
May-13
Oct-13
Mar-14
Aug-14
Jan-15
Jun-15
Nov-15
Apr-16
Sep-16
Feb-17
Jul-17
Dec-17
-0.4
-0.2
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
Inflation rate
Inflation rate
Answer 5)
In case when the used textbook is taken from a friend to use it, the transactions which
takes place while handling the book will not be included in the gross domestic product. the
reason behind this is that gross domestic product only comprises of the goods which have
final value. Therefore, it can be stated that using a used textbook or using an old book from a
friend will not be included in the gross domestic product.
Answer 6)
When publisher buys a new printing machine slog that he can print new textbooks, the
transactions that will take place will be included in the gross domestic product. The reason

behind this is that gross domestic product pa4rticularly includes only the final value of newly
produced goods. As only final value of the newly produced goods is calculated, when the
publisher will be buying a printing machine it could be included in the GDP.
Answer 7)
The economic indicator that examines the movement of price of the basket of services
and goods is termed as the consumer price index. In case of inflation the CPI is known to
increase within a small p3eriod of time. it is said that the cyclone will lead to rise in the
consumer price index as the cost of bananas have increased after the cyclone. However, the
impact of the cyclone on the cost of bananas is an overestimation of the consumer price
index. Since inflation as a basket of goods is used for calculating the rate of CPI, it might be
facing a very high rate of interest. Thus it can be said that the effect of the cyclone Lary on
the price of bananas is an overestimation of consumer price index.
Task 7
Answer1)
In case of reduction in the consumer confidence there will be a presence of tendency
of the consumer to spend less amount of money and save more. The consumer confidence can
be stated as type of economic indicator which will state the optimistic degree of the consumer
about the overall state of the economy. The consumer confidence is known to rise when the
economy will be expanding and goes down whenever er there will be contraction of the
economy. Investors, banks, government agencies and other people will use different
assessments of consumer confidence in order to make plans in future.

When there will be an increase in the consumer confidence, he will be spending more and at
that time it will result in increase in the curved of the aggregate demand to the rightward
direction. However, when there will be a fall in the confidence of the consumer, the aggregate
demand will be shifting to the left so that the consumer will be spending less and saving
more. Therefore, it can be said when there will be a fall in the consumer confidence the
demand will be shifting to the left.
Answer 2)
The aggregate demand usually shifts to left when there will be a rise in the domestic price.
And also, when the price will rise people will be demanding less. With the rise in rate of
interest consumers will tend to demand less amount of food. Therefore, when the price of
goods increases it will lead to rise in demand.
Answer 3)

In case of slower rate of growth of income in the other countries, the aggregate demand curve
will be shifting to the rightward. In such cases the demand of the particular country will be
rising because there will be a low growth of income in other countries. So, it can be said that
in case of lower growth of income in other countrie4s, the demand curve will be shifting to
the right.
Answer 4)
When there is a fall in the national output it will result to economic inflation which is
generally measure d with the help of gross domestic product. The advisor of the federal
government therefore, it is advisable to see the value of the gross domestic product of the
economy.
In case of economic contraction in the economy which is a phase in the business cycle, there
is a decline in the economy. Economic contraction will also take place when there is a decline
in the gross domestic product of the country for a two or more than two consecutive years. in
case of economic recession the u unemployment rate also increases. Economic contraction ill
also lead to fall in real personal income and the sales of the retail. When there is economic
contraction, companies will be staring to lay off workers which will also lead to increase the
rate of unemployment. An economic contraction also takes place when there will a loss in
confidence slowing the rate od demand. Expansion, contraction, peak and trough are the four
kinds of business cycle. The end of expansionary period is the peak phase after which the rate
of contraction will be talking place. When contraction takes place the investors sells stocks
by sending the prices downward and reduce the financing.
Reference list

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Baumol, W.J. and Blinder, A.S., 2015. Microeconomics: Principles and policy. Nelson
Education.
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Policies, 16.
Microeconomics, E.E., 2015. KELVIN WONG. Cell, 808, pp.386-8406.
Mankiw, N.G., 2016. Economics-Microeconomics-Principles of Microeconomics.
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