Economics Principles: Inflation, CPI, Consumer Confidence, and Economic Contraction

This article covers topics such as inflation, CPI, consumer confidence, and economic contraction in economics principles. It includes answers to various questions related to these topics.

Running head: ECONOMICS PRINCIPLES
Economics principles
Name of the student
Name of the university
Author note

1ECONOMICS PRINCIPLES
Table of contents
Task 6.....................................................................................................................................................2
Answer 1)..............................................................................................................................................2
Answer2)...............................................................................................................................................2
Answer 3)..............................................................................................................................................2
Answer4) ..............................................................................................................................................4
Answer 5)..............................................................................................................................................4
Answer 6)..............................................................................................................................................4
Answer 7)..............................................................................................................................................5
Task 7.....................................................................................................................................................5
Answer1)...............................................................................................................................................5
Answer 2)..............................................................................................................................................6
Answer3)...............................................................................................................................................7
Answer4)...............................................................................................................................................7
Reference list.........................................................................................................................................8

2ECONOMICS PRINCIPLES
Task 6
Answer 1)
As unemployment benefits are not included
while calculating the national income , it can be
therefore said the unemployment benefits of $500
per annum will not be calculated while measuring
the national income. Therefore, it can be said that
there will be no change in his national income.
Answer2)
The rate of inflation is 21.7%
The rate of inflation is calculated by the formula:
Answer 3)
Quarter CPI Inflation
rate
Mar-09 92.5
Jun-09 92.9 0.43243243
2
Sep-09 93.8 0.96878363
8
Dec-09 94.3 0.53304904
1
Mar-10 95.2 0.95440084
8
Jun-10 95.8 0.63025210
1
Sep-10 96.5 0.73068893
5
Dec-10 96.9 0.41450777
2
Mar-11 98.3 1.44478844
2
Jun-11 99.2 0.91556459
8
Sep-11 99.8 0.60483871
Dec-11 99.8 0
Mar-12 99.9 0.10020040
1
Jun-12 100.
4
0.50050050
1
Sep-12 101.
8
1.39442231
1
Dec-12 102.
0
0.19646365
4
Mar-13 102.
4
0.39215686
3
Jun-13 102.
8
0.390625
Sep-13 104.
0
1.16731517
5
Dec-13 104.
8
0.76923076
9
Mar-14 105.
4
0.57251908
4
Jun-14 105.
9
0.47438330
2
Sep-14 106.
4
0.47214353
2
Dec-14 106.
6
0.18796992
5
Mar-15 106.
8
0.18761726
1
Jun-15 107.
5
0.65543071
2
Sep-15 108.
0
0.46511627
9
Dec-15 108.
4
0.37037037
Mar-16 108.
2
-
0.18450184
5
Jun-16 108.
6
0.36968576
7
Sep-16 109.
4
0.73664825
Dec-16 110 0.54844606
9
Mar-17 110.
5
0.45454545
5
Jun-17 110.
7
0.18099547
5
Sep-17 111.
4
0.63233965
7
Dec-17 112.
1
0.62836624
8
Mar-18 112.
6
0.44603033

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Answer4)
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)
When a used textbook from a friend is used, the transactions will not add to the value
of gross domestic product since the GDP only includes the final value of the newly produced
goods. Therefore, it can be said that buying an old or an used textbook will not add to the
gross domestic product.
Answer 6)

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As it is known the newly produced goods are calculated in the gross domestic
product, so it can be said that when a publisher buys a new printing machine in order to print
new textbooks, the transactions will be included in the GDP(Baumol and Blinder 2015).. As
only on the final goods, the GDP can be calculated, buying the new printing machine will add
to the value pf the domestic product.
Answer 7)
The consumer price index is a type of economic indicator which measures the price
movements of a basket of goods and services. The CPI usually rises within a short period of
time in case of inflation. Cyclone Larry resulted in the increase in CPI as the price of bananas
increased after cyclone. As the cyclone have destroyed the crops, the price of bananas have
increased (McConnell, Brue and Flynn 2014). The impact is definitely an overestimation of
CPI and inflation as the basket of goods which were used for calculating CPI might be facing
a much more high rate of interest. Therefore, it can be said that the impact of the cyclone is
an overestimation of the consumer price index.
Task 7
Answer1)
When there is reduction in the consumer confidence there is a tendency of the
consumer to spend less money and save more. Consumer confidence is a type of economic
indicator which states the optimistic degree of a consumer about the overall state of the

5ECONOMICS PRINCIPLES
economy. The confidence of any consumer generally increases when the economy usually
expands and goes down when the economy contracts. Investors, retailers, banks and
government agencies use various assessments of consumer confidence for making future
plans.
When there is a rise in the confidence of the consumer, he will spend more and
therefore the aggregate demand curve shifts to right. On the other hand when there is a
decrease in the confidence of the consumer, the aggregate demand will shift to left as at that
time the consumer will spend less and save more (Microeconomics, E.E., 2015). Therefore,
when there is reduction in the confidence of the consumer, the aggregate demand will shift to
left.

6ECONOMICS PRINCIPLES
Answer 2)
When there is an increase in the domestic price, the aggregate demand curve shifts
left. When the price increases people will demand less. As the interest rate also rises,
consumers tend to demand less amount of good. Therefore, it can be said when prices
increases, there is a decrease in demand.
Answer3)
Aggregate demand will shift to the right when there is slower income growth in other
countries. In this case the demand of the particular country increases as in the other countries
there is a lower growth of income. Therefore, it can be said when there is slower growth of
income in other countries, demand curve will shift to right.
Answer4)
The decrease in the national output which is generally measured with the help of gross
domestic product is termed as economic inflation. Therefore, being an advisor of the federal
government, an individual need to look at the value of the gross domestic product of the
economy.
An economic contraction is a kind of phase in the business cycle where the economy
is in decline. A contraction is also said to form when the real gross domestic product of a
country has decreased in case of two or more consecutive years. the rate of unemployment
also increases in the period of economic recession. Economic contraction also results to the
fall in real personal income and the sales of the retail (Baumol and Blinder 2015). Companies
also stops hiring people in order to save money. In the period of economic contraction

7ECONOMICS PRINCIPLES
companies usually starts laying off workers and also sends the rates of unemployment on a
higher scale. A contraction also results due to loss in confidence which will also slow
demand. The business cycle is composed of four kinds of discrete phases which are
expansion, contraction, peak and trough. The peak phase states the end of the expansionary
period after which the rate of contraction takes place. In case of contraction the investors also
sells stocks and they also sends the prices downward by reducing financing in case of large
corporations.

8ECONOMICS PRINCIPLES
Reference list
Bernanke, B.S., Laubach, T., Mishkin, F.S. and Posen, A.S., 2018. Inflation targeting:
lessons from the international experience. Princeton University Press.
Ellis, J., Garcia, M.A., Nanopoulos, D.V. and Olive, K.A., 2015. Calculations of inflaton
decays and reheating: with applications to no-scale inflation models. Journal of Cosmology
and Astroparticle Physics, 2015(07), p.050.
Baumol, W.J. and Blinder, A.S., 2015. Microeconomics: Principles and policy. Nelson
Education.
McConnell, C., Brue, S. and Flynn, S.M., 2014. Microeconomics: Principles. Problems, and
Policies, 16.
Microeconomics, E.E., 2015. KELVIN WONG. Cell, 808, pp.386-8406.
Mankiw, N.G., 2016. Economics-Microeconomics-Principles of Microeconomics.
Chiang, E.P., 2017. Microeconomics: Principles for a Changing World. worth publishers
Macmillan Learning.