Macroeconomics: Analysis of US GDP, China's CPI, US Labor Market, Malaysia's Capital Formation and Business Cycle Risk

This report analyzes recent macroeconomic trends in US, China and Malaysia. It covers topics like US GDP growth, China's CPI, US labor market, Malaysia's capital formation and business cycle risk.

Running Head: MACROECONOMICS
Macroeconomics
Name of the Student
Name of the University
Course ID

1MACROECONOMICS
Table of Contents
Analysis of Topic 1..........................................................................................................................2
Analysis of Topic 2..........................................................................................................................3
Analysis of Topic 3..........................................................................................................................3
Analysis of Topic 4..........................................................................................................................4
Analysis of Topic 5..........................................................................................................................5
Conclusion.......................................................................................................................................6
References........................................................................................................................................7

2MACROECONOMICS
Analysis of Topic 1
Article Source
U.S. 4% GDP Growth Seen More ‘Luck of the Draw’ Than New Reality
https://www.bloomberg.com/news/articles/2018-07-23/u-s-4-gdp-growth-seen-more-luck-of-the-
draw-than-new-reality
Article Summary
The economy of United State has attained a growth rate of 4 percent in the second
quarter. This is so far the highest growth rate since 2014. The economy growth is stimulated by
cut in tax, expansion of trade and increase in inventories in the last quarter of 2018
(bloomberg.com, 2018). The economic expansion however tends to settle down at a less specular
pace.
Analysis of the Article
Aggregate output of a nation is measured by the composite measure named Gross
Domestic Product. GDP of a nation captures the monetary value of produced goods and services
within the nation. There are different ways of computing GDP of a nation. By expenditure
method, Gross Domestic Product is represented as a sum of consumption expenditure,
investment expenditure, government expenditure and net export. Change in any one of these
components lead to a change in measured GDP and growth prospects (Mankiw, 2014). The
higher GDP growth of United State is not generated from a single factor. Multiple factors are at
play that stimulate GDP and economic growth of US.
The first component of economic growth is the growing consumption spending. The
fiscal stimulus given in form of a cut in taxes helps to increase disposable income of the
consumer (Gottheil, 2013). This in turn lead to a higher spending in the economy and higher
growth.

3MACROECONOMICS
Figure 1: Economic growth in United State
(Source: bloomberg.com, 2018)
Another two components adding to economic growth are volatile inventory investment and
increase in Soybean export beyond tariff retaliation between US and China. However, the matter
of concern is that the 4 percent growth rate is not a steady growth given the current state of the
economy (bloomberg.com, 2018). Government of US is planning to take contractionary policies
to bring back economic growth to the stable pace.
Analysis of Topic 2
Article Source
China's consumer prices to rise 1.8 pct in 2018: economic planner
http://www.xinhuanet.com/english/2018-07/25/c_137347129.htm
Article Summary
Consumer Price Index, a measure of tracking inflation in China is expected to increase by
1.8 percent in 2018. China aims to maintain an inflation rate of 3 percent same as that in the
previous year (xinhuanet.com, 2018). The general price level in China is expected to remain
stable which will help to maintain a stable growth rate.
Analysis of the Article
The in incidence of a gradual increase in the general price level is termed as inflation. It
is the percentage increase in the general price level. Very high inflation rate has several adverse
effect the economy. It reduces purchasing power of people if nominal income remains
unchanged. With a decline in purchasing power standard of living decline as well. The two main
forms of inflation are demand pull inflation and cost push inflation. In case of demand-pull
inflation, there is an increase in demand for goods and services. Given the supply of goods
constant, increase in demand lead to an increase in prices. With cost-push inflation, cost of
production increase due to an increase in factor cost. Producers then increase price to maintain
their profit margin (Johnson, 2017).
In China, surge in the international oil price has worked as a main stimulatory factor CPI
growth nearly equals 2 percent in the first six months of this year (xinhuanet.com, 2018). Oil is
considered as one of the main inputs in many industries. An increase in international oil price
leads to an increase in cost of production in these industries. In response to higher cost aggregate
supply contract pushing up prices.
Analysis of Topic 3
Article Source
U.S. Payrolls Rise 213,000; Wage Gains Slow, Unemployment Up
https://www.bloomberg.com/news/articles/2018-07-06/u-s-payrolls-rise-213-000-wage-gains-
slow-unemployment-up
Article Summary

4MACROECONOMICS
The labor market in United State is currently experiencing an unemployment rate from a
sustained low unemployment rate for a past 18 period. Along with high unemployment, wage
growth is unexpectedly slow. More people are entering in the labor force (bloomberg.com,
2018). This increase jobless rate. The condition of labor market might have led Fed to ease
interest rate hike.
Analysis of the Article
Unemployment is a condition in the labor market that signifies people who are incapable
of finding jobs. There are three conditions that defines unemployment. Unemployment is defined
in terms of desire to work, ability to work and active job search. Labor force of an economy
involve both employed and unemployed people belonging to the working age population that is
portion of population above the age of 15 (Bernanke, Antonovics & Frank, 2015).
Figure 3: Trend in US pay-rolls
(Source: bloomberg.com, 2018)
There is a decline in treasury yield along with a decline in value of dollar. The future
stock however increase indicating less pressure on Federal Reserve to raise the interest rate. Fed
can take an expansionary policy considering the condition of the labor market. Jobless rate in
United State has increased to 4 percent. As the jobless rate surpass the estimate of central bank,
the bank should take expansionary policy to ease the labor condition of labor market. The intense
trade war also threatens economic growth in United State which can further aggravate the
problem of unemployment and slow growth in wages (Gottheil, 2013).
Another concern for the labor market in the decline in the supply of qualified workers.
This can slow the gain in employment in the economy.
Analysis of Topic 4
Article Source
Gross fixed capital formation rises 6.2 pct in 2017
http://www.theedgemarkets.com/article/gross-fixed-capital-formation-rises-62-pct-2017

5MACROECONOMICS
Article Summary
The Gross Fixed Capital Formation in Malaysia has increased to 6.2 percent. The growth
capital formation has been resulted from a steady growth in both manufacturing and service
sector in Malaysia. Growth in services like transportation, communication and information
ensures a growth in service sector (theedgemarkets.com, 2018). Manufacturing growth are
ensured by progress in electrical, optical product and transportation equipment.
Analysis of the Article
In economics, investment is defined as the addition to the existing stock of capital. This is
the creation of new capital goods and housing. Firms invest in capital goods in order to increase
profit. Firms buy new capital by following Cost-Benefit Principle. Cost refers to the cost of using
machines and other capital goods. Benefits from an investment is measure by the marginal
product of capital. Firms make new investment if the benefits exceed cost (Bernanke,
Antonovics & Frank, 2015).
The service sector in Malaysia has accounted a growth rate of 9.6 percent. The major
services in Singapore include transportation and storage, communication activity and
information. All these services require heavy investment in capital goods (Mankiw, 2014).
Therefore, an expansion of these sector adds to the gross fixed capital formation of the nation.
In the manufacturing sector, industries that have accounted a high growth rate include
electronic and electrical components, optical and transport equipment. Investment in these
industries further contribute to an increase in capital formation. Overall growth has been
strengthening due to a noticeable growth rate in petroleum, rubber, chemical and plastic products
(theedgemarkets.com, 2018).
The recorded progress in manufacturing and service sectors heavily relying on capital
goods lead to an increase in capital formation in the economy of Malaysia.
Analysis of Topic 5
Article Source
U.S. Business Cycle Risk Report - 24 July, 2018
https://seekingalpha.com/article/4189431-u-s-business-cycle-risk-report-24-july-2018
Article Summary
The geopolitical risks and trade tensions possess a potential risk on economic growth in
the second quarter. With a projected decline in economic growth, the economy is likely to reach
to deceleration phase of the business cycle. It however remains unclear whether the projected
easing of the economy should be considered as a noise or a warning sign (seekingalpha.com,
2018).
Analysis of the Article
The economic growth of a nation is unlikely to follow a smooth trend. Instead, it
fluctuates in a cyclical manner. The fluctuation in the trend GDP growth is broadly classified
into four different phases- expansion, peak, contraction and trough. In the phase of economic
expansion economic growth increase steadily along with an increase in employment and prices.

6MACROECONOMICS
Following continuous expansion, the economy reaches to a point of where growth is maximized
known as peak. From this point economic activity declines gradually leading to a decline in
economic growth, employment and prices (Goodwin et al., 2015). The slowdown stops as the
economy reaches to the lowest point of growth known as trough.
Figure 3: Phases of business cycle
(Source: Bernanke, Antonovics & Frank, 2015)
Economic growth of US in the second quarter has been ended on a healthy state. The
economy in the last three months picked up to 0.16. The growth rate is though lower than the
recent peak rate but it is way above -0.70, a rate that signal beginning of a recession 9
seekingalpha.com, 2018). In recent years, the trade tension between US and China has been
accelerated. This might put economic growth of US in trouble leading to a slow-down in
economic activities. However currently the economy is in a pace of economic expansion. In fact,
the economy is growing by more than double as compared to its first quarter growth rate.
Conclusion
The report discusses articles on some important macroeconomic theories. The US
economy has accounted an astonishing growth rate in the last quarter mainly due to expansion in
consumption spending, inventory investment and trade expansion. In China, the CPI inflation has
grown at a rate of 1.8 percent with indication of a fairly stable price level in thus year. Rising
unemployment and slow wage growth has now become one of the major concern for US
economy. The capital formation has gained momentum in Malaysia following an expansion of
manufacturing and service sector. Finally, the ongoing trade war and geopolitical risk continues
to possess a threat in the stable growth path of US.

7MACROECONOMICS
References
Bernanke, B., Antonovics, K., & Frank, R. (2015). Principles of macroeconomics. McGraw-Hill
Higher Education.
Chandra, S. (2018). U.S. 4% GDP Growth Seen More ‘Luck of the Draw’ Than New Reality.
Retrieved from https://www.bloomberg.com/news/articles/2018-07-23/u-s-4-gdp-growth-
seen-more-luck-of-the-draw-than-new-reality
China's consumer prices to rise 1.8 pct in 2018: economic planner - Xinhua | English.news.cn.
(2018). Retrieved from http://www.xinhuanet.com/english/2018-07/25/c_137347129.htm
Dmitrieva, K. (2018). U.S. Payrolls Rise 213,000; Wage Gains Slow, Unemployment Up.
Retrieved from https://www.bloomberg.com/news/articles/2018-07-06/u-s-payrolls-rise-
213-000-wage-gains-slow-unemployment-up
Goodwin, N., Harris, J. M., Nelson, J. A., Roach, B., & Torras, M. (2015). Macroeconomics in
context. Routledge.
Gottheil, F. (2013). Principles of macroeconomics. Nelson Education.
Gross fixed capital formation rises 6.2 pct in 2017. (2018). Retrieved from
http://www.theedgemarkets.com/article/gross-fixed-capital-formation-rises-62-pct-2017
Johnson, H. G. (2017). Macroeconomics and monetary theory. Routledge.
Mankiw, N. G. (2014). Principles of macroeconomics. Cengage Learning.
Picerno, J. (2018). U.S. Business Cycle Risk Report - 24 July, 2018. Retrieved from
https://seekingalpha.com/article/4189431-u-s-business-cycle-risk-report-24-july-2018