Macroeconomics Assignment: Article Analysis

This article analysis covers topics like GDP, inflation, wages, capital formation, and business cycle. It provides insights on the latest economic trends and their impact on the global economy. The analysis is based on articles from various sources and includes diagrams and figures to explain the concepts. The report is suitable for students studying macroeconomics and related courses.

Running head: MACROECONOMICS ASSIGNMENT: ARTICLE ANALYSIS
Macroeconomics Assignment: Article Analysis
Name of the Student
Name of the University
Author Note
Date of Report: 18.07.2018

1MACROECONOMICS ASSIGNMENT: ARTICLE ANALYSIS
Table of Contents
Chapter 1: GDP and Economic Growth.....................................................................................2
Chapter 2: Inflation and Price Level..........................................................................................4
Chapter 3: Wages and Unemployment......................................................................................7
Chapter 4: Savings, Capital Formation and Financial Markets.................................................9
Chapter 5: Business Cycle, Short-term Economic Fluctuations and Aggregate Expenditure. 11
Conclusion................................................................................................................................13
References................................................................................................................................14

2MACROECONOMICS ASSIGNMENT: ARTICLE ANALYSIS
Chapter 1: GDP and Economic Growth
a. Article: “Chinese economic growth slowed a bit in the June quarter”1
Obtained from: https://www.businessinsider.com.au/china-economy-gdp-growth-q2-2018
7#J5Zu6wvk17rrLpzI.99
b. Article Summary:
The economic growth of China, as per the assertions of the concerned article, can be
seen to have slowed down to some extent, in the quarter of June in 2018, the annual growth
rate of the economy of the country being the slowest since the quarter of September of 20162.
Figure 2: Economic activity indicators of China3
The urban fixed asset investment in the country can be seen to be decreasing
drastically, which may have contributed to the slowdown of economic growth of the country
in the last quarter.
c. Analysis:
1 David Scutt, "Chinese economic growth slowed a bit in the June quarter", Business Insider Australia, 2018,
online, Internet, 20 Jul. 2018. , Available: https://www.businessinsider.com.au/china-economy-gdp-growth-q2-
2018-7.
2 Nolan, Peter. "China and the global economy." Charting China's Future. Routledge, 2012. 55-64.
3 David Scutt, "Chinese economic growth slowed a bit in the June quarter", Business Insider Australia, 2018,
online, Internet, 20 Jul. 2018. , Available: https://www.businessinsider.com.au/china-economy-gdp-growth-q2-
2018-7.

3MACROECONOMICS ASSIGNMENT: ARTICLE ANALYSIS
The productivity and growth dynamics of an economy can be analysed with the help
of the aggregate demand and supply Model. It depicts under the rise in the government
expenditure, total productivity of the economy also rises. Investment is one of the most
crucial components of the aggregate demand side of an economy and the fall in the
investment leads to a fall in the aggregate demand in the economy, the result being shown
with the help of the following figure:
Figure 3: Impacts of fall in Investment on output
(Source: As created by the author)
The fall in investment can be seen to reduce the aggregate demand, which in turn
reduces the output (Y) of China in the June Quarter4. This is primarily because with the fall in
the aggregate demand, the sellers also feel less motivated to produce more, which in turn
leads to a fall in the supply and productivity of the country, which again, in the long term can
cause economically stagnating situation.
4 Mankiw, N. Gregory. Principles of macroeconomics. Cengage Learning, 2014.

4MACROECONOMICS ASSIGNMENT: ARTICLE ANALYSIS
Chapter 2: Inflation and Price Level
a. Article: “UK inflation Preview: Rising inflation adds a reason why the Bank of
England will hike rates in August”5
Obtained from: https://www.fxstreet.com/analysis/uk-inflation-preview-rising-inflation-adds-
a-reason-why-the-bank-of-england-will-hike-rates-in-august-201807171047
b. Article Summary:
As per the assertions of the concerned article, the external factors, which primarily
include the increase in the price of oil and also internal factors like those of increase in the
level of employment in the country, has been leading to increase in the aggregate demand,
thereby putting upward pressure on price levels in the economy of the UK6.
5 FXStreet, "UK inflation Preview: Rising inflation adds a reason why the Bank of England will hike rates in
August", FXStreet, 2018, online, Internet, 20 Jul. 2018. , Available: https://www.fxstreet.com/analysis/uk-
inflation-preview-rising-inflation-adds-a-reason-why-the-bank-of-england-will-hike-rates-in-august-
201807171047.
6 Hofmann, Boris, and Feng Zhu. "Central bank asset purchases and inflation expectations." (2013).

5MACROECONOMICS ASSIGNMENT: ARTICLE ANALYSIS
Figure 3: Inflation dynamics in UK over the years7
This increase in rate of inflation in the UK in the recent years, can be attributed to the latest
decision of the Bank of England to raise the rate of interests.
c. Analysis:
The increase in demand leads to increase in the price levels, thereby increasing the
level of inflation in the country, which is known as a demand pull inflation and which as can
be seen in the following figure:
Figure 4: Effect of increase in demand
(Source: As created by the author)
As is evident from the above figure, the increase in the aggregate demand, has led to
an increasing price level in the country (P1 to P2). This is an example of demand-pull
inflation. One of the primary components of the aggregate demand being investment
expenditure, the same can be controlled to some extent by manipulating the rate of interest of
the country. In this context, increasing the rate of interest will lead to decrease in the amount
7 FXStreet, "UK inflation Preview: Rising inflation adds a reason why the Bank of England will hike rates in
August", FXStreet, 2018, online, Internet, 20 Jul. 2018. , Available: https://www.fxstreet.com/analysis/uk-
inflation-preview-rising-inflation-adds-a-reason-why-the-bank-of-england-will-hike-rates-in-august-
201807171047.

6MACROECONOMICS ASSIGNMENT: ARTICLE ANALYSIS
borrowed, thereby decreasing the investment expenditures, which can lead to fall in the
aggregate demand8.
Figure 5: Investment Curve
(Source: As created by the author)
This in turn can lead to fall in the aggregate demand which in turn can help in
reducing the inflationary pressure in the country in the coming years.
Chapter 3: Wages and Unemployment
a. Article: “UK wage growth slides to lowest rate in six months”9
Obtained from: https://www.theguardian.com/business/2018/jul/17/uk-wage-growth-pay-
unemployment
b. Article Summary:
8 Burda, Michael, and Charles Wyplosz. Macroeconomics: a European text. Oxford university press, 2013.
9 Richard Partington, "UK wage growth slides to lowest rate in six months", the Guardian, 2018, online,
Internet, 20 Jul. 2018. , Available: https://www.theguardian.com/business/2018/jul/17/uk-wage-growth-pay-
unemployment.

7MACROECONOMICS ASSIGNMENT: ARTICLE ANALYSIS
As per the assertions of the concerned article wage growth rate of the UK has been the
lowest in the last six months. The surprising fact which the article shows is that the low
growth rates of wages is not coupled with the presence of high unemployment rate10. The
main reason behind the same, as argued by the concerned article, is the creation of huge
number of low wage jobs in the economy11.
c. Analysis:
The primary economic interpretation of the low growth rate of the wages in the
country, the creation of low paid jobs in huge numbers in the country and the inter-
relationship between the same can be put forward with the help of demand-supply in the
labour market. In the presence of huge immigration in the country over the years, the supply
of labour can be seen to be increasing in the UK in the recent period, the implications of the
same can be seen with the help of the following diagram:
10 Richard Partington, "UK wage growth slides to lowest rate in six months", the Guardian, 2018, online,
Internet, 20 Jul. 2018. , Available: https://www.theguardian.com/business/2018/jul/17/uk-wage-growth-pay-
unemployment.
11 Wilkinson, Frank, ed. The dynamics of labour market segmentation. Elsevier, 2013.

8MACROECONOMICS ASSIGNMENT: ARTICLE ANALYSIS
Figure 6: Demand and supply in labour market
(Source: As created by the author)
The presence of excess supply in the labour market can be one of the primary causal
factor behind the increase in the additional jobs in the economy and also behind the sluggish
rate of growth of wage rates as the priority of the workers are of getting employed, even at
lower wage rates12. The number of eligible candidates in the labour force being high, the level
of competition among them to get a job is also high, the advantage of which can be seen to be
taken by the employers, who can keep the wage low and still get workers of desired skills for
their operations.
Chapter 4: Savings, Capital Formation and Financial Markets
a. Article: “Rising Capital Formation Should Galvanise GDP”13
Obtained from: https://independent.ng/rising-capital-formation-should-galvanise-gdp/
b. Article Summary:
The article points out towards the increase in the Gross Fixed Capital Formation in
Nigeria, from an average of N1690325.32 million (2007-2016) to an all tome high of
N2873296.49 million in 201614. As per the assertions of the article, the recent slow-down in
the economy can be reversed by encouraging the capital formation in the country by higher
savings on part of the households by providing them incentives to increase their marginal
propensity to save.
c. Analysis:
12 Peichl, Andreas, and Sebastian Siegloch. "Accounting for labor demand effects in structural labor supply
models." Labour Economics 19.1 (2012): 129-138.
13 Independent.ng. "Rising Capital Formation Should Galvanise GDP". Independent.ng, 2018. Online. Internet.
20 Jul. 2018. . Available: https://independent.ng/rising-capital-formation-should-galvanise-gdp/.
14 Independent.ng. "Rising Capital Formation Should Galvanise GDP". Independent.ng, 2018. Online. Internet.
20 Jul. 2018. . Available: https://independent.ng/rising-capital-formation-should-galvanise-gdp/.

9MACROECONOMICS ASSIGNMENT: ARTICLE ANALYSIS
The increase in the encouragement of people in Nigeria to save more can help in
increasing the marginal propensity to save in the country, thereby having its implications on
the overall creation of capital, which in turn can help in increasing the investment and also
productivity in the country15. This in turn can also help in increasing the employment and
wage dynamics thereby increasing the consumption expenditure, the impacts being shown as
follows:
Figure 7: Effects of increase in capital formation
(Source: As created by the author)
The increase in the capital formation in the concerned country can be seen to increase
both the aggregate supply as well as the aggregate demand in the country, in the long run,
there will be increase in the overall economic productivity and GDP of the country in the
15 Gandolfo, Giancarlo. International Economics II: International Monetary Theory and Open-Economy
Macroeconomics. Springer Science & Business Media, 2013.

10MACROECONOMICS ASSIGNMENT: ARTICLE ANALYSIS
coming years. This in turn, can help the country to reverse its stagnating growth trends in the
near future.
Chapter 5: Business Cycle, Short-term Economic Fluctuations and Aggregate
Expenditure
a. Article: “U.S. Business Cycle Risk Report - 22 June, 2018”16
Obtained from: https://seekingalpha.com/article/4183427-u-s-business-cycle-risk-report-22-
june-2018
b. Article Summary:
As per the assertions of the article, in spite of the USA experiencing trade wars and
economic tensions with that of China, the current economy of the country is at lower risks of
recession with the forecast of business cycle being robust over the coming years17. The article
also indicates towards the fact that the presence of a forecast of high acceleration of GDP of
the country in the coming years and the money market also shows no chance of negative
dynamics.
c. Analysis:
The term “Business Cycle” refers to the alternative upwards and downward
movements of the economy of a country (measured in terms of the dynamics of the national
output) along with its long-term growth trend.
16 Picerno, James. "U.S. Business Cycle Risk Report - 22 June, 2018". Seeking Alpha, 2018. Online. Internet. 20
Jul. 2018. . Available: https://seekingalpha.com/article/4183427-u-s-business-cycle-risk-report-22-june-2018.
17 Picerno, James. "U.S. Business Cycle Risk Report - 22 June, 2018". Seeking Alpha, 2018. Online. Internet. 20
Jul. 2018. . Available: https://seekingalpha.com/article/4183427-u-s-business-cycle-risk-report-22-june-2018.

11MACROECONOMICS ASSIGNMENT: ARTICLE ANALYSIS
Figure 7: Business Cycle
(Source: As created by the author)
When the economy experiences positive growth, the trend shows upward movement
with peak being the highest achieved economic growth. However, at times of stagnancy and
recessions the growth plunges to the trough before recovering again with the increase in the
economic growth18.
In case of the USA in the current period, the economy is in the positive side of the
business cycle with no threats in the near future, which in turn indicates towards the fact the
country is currently in the peak portion of the above shown business cycle. However,
excessive trade wars with other economic giants like China and other economic tensions, if
extended for a prolonged period, can hamper the economic growth of the country in the long
run and can also have negative implications on the business cycle of the concerned country.
18 Morley, James, and Jeremy Piger. "The asymmetric business cycle." Review of Economics and Statistics 94.1
(2012): 208-221.

12MACROECONOMICS ASSIGNMENT: ARTICLE ANALYSIS
Conclusion
From the above discussion, it can thus be concluded that the economic growth of
China has decreased to some extent in the previous quarter, much of which can be attributed
to the fall in the investments in the country. In the economy of the UK, the inflation level can
be seen to be increasing in response to which the Bank of England can be seen to be
potentially taking the strategy of increase in the rate of interest. The wage-rates of the UK can
also be seen to be growing sluggishly due to the presence of huge labour supply and also due
to creation of low wage jobs. In case of capital formation, Nigeria has been showing positive
trends, which can help the country to achieve positive economic growth. In spite of presence
of economic tensions with China, the economy of USA can be seen to be showing positive
trends with no chances of recession or downturn in the near future.

13MACROECONOMICS ASSIGNMENT: ARTICLE ANALYSIS
References
Burda, Michael, and Charles Wyplosz. Macroeconomics: a European text. Oxford university
press, 2013.
FXStreet. "UK inflation Preview: Rising inflation adds a reason why the Bank of England
will hike rates in August". FXStreet, 2018. Online. Internet. 20 Jul. 2018. . Available:
https://www.fxstreet.com/analysis/uk-inflation-preview-rising-inflation-adds-a-reason-why-
the-bank-of-england-will-hike-rates-in-august-201807171047.
Gandolfo, Giancarlo. International Economics II: International Monetary Theory and Open-
Economy Macroeconomics. Springer Science & Business Media, 2013.
Hofmann, Boris, and Feng Zhu. "Central bank asset purchases and inflation expectations."
(2013).
Independent.ng. "Rising Capital Formation Should Galvanise GDP". Independent.ng, 2018.
Online. Internet. 20 Jul. 2018. . Available: https://independent.ng/rising-capital-formation-
should-galvanise-gdp/.
Mankiw, N. Gregory. Principles of macroeconomics. Cengage Learning, 2014.
Morley, James, and Jeremy Piger. "The asymmetric business cycle." Review of Economics
and Statistics 94.1 (2012): 208-221.
Nolan, Peter. "China and the global economy." Charting China's Future. Routledge, 2012.
55-64.
Partington, Richard. "UK wage growth slides to lowest rate in six months". the Guardian,
2018. Online. Internet. 20 Jul. 2018. . Available:
https://www.theguardian.com/business/2018/jul/17/uk-wage-growth-pay-unemployment.

14MACROECONOMICS ASSIGNMENT: ARTICLE ANALYSIS
Peichl, Andreas, and Sebastian Siegloch. "Accounting for labor demand effects in structural
labor supply models." Labour Economics 19.1 (2012): 129-138.
Picerno, James. "U.S. Business Cycle Risk Report - 22 June, 2018". Seeking Alpha, 2018.
Online. Internet. 20 Jul. 2018. . Available: https://seekingalpha.com/article/4183427-u-s-
business-cycle-risk-report-22-june-2018.
Scutt, David. "Chinese economic growth slowed a bit in the June quarter". Business Insider
Australia, 2018. Online. Internet. 20 Jul. 2018. . Available:
https://www.businessinsider.com.au/china-economy-gdp-growth-q2-2018-7.
Wilkinson, Frank, ed. The dynamics of labour market segmentation. Elsevier, 2013.

15MACROECONOMICS ASSIGNMENT: ARTICLE ANALYSIS
P S2 S1
P2
P1
D1 D2
0 Y2 Y1 Y