TABLE OF CONTENTS Question 1.............................................................................................................................................3 Question 2.............................................................................................................................................4 Question 3.............................................................................................................................................4 Question 4.............................................................................................................................................5 REFERENCES.....................................................................................................................................6 APPENDIX..........................................................................................................................................7 Calculation for Aggregate consumption and expenditure....................................................................8
Question 1 Economic equilibrium is a condition within which economic forces for instance demand and supply are balanced and in the absence of external affects the equilibrium values of economic variables will not change (Jarrow, 2018). For example – as per the standard textbook model of perfect competition, equilibrium takes place at the point at which quantity demanded & the quantity supplied are equal. In this case market equilibrium is a situation in which market price is developed through competition in such a way that the amount of services and goods. 1.Most pressing economic problem with the economy. The most pressing economic problem within the economy is the expenditure, according to the above diagram or expenditure-output model determines the equilibrium level of real gross domestic product or GDP by the point where the aggregate or total expenditure in the economy which are equal to the amount of output produced (Auclert and Rognlie, 2018). The fundamental ideasofKeynesianeconomicswerecreatedbeforetheaggregatedemandorsupplywas popularised. Keynesian economics was generally explained with a different model known as the expenditure output approach. Equilibrium is a point of balance where no incentive exits to shift away from that result. In order to understand why the point of interaction between the aggregate expense function and he 45-degree line is a macroeconomic equilibrium. 2.Keynesian response to this problem The Keynesian cross diagram helps to ascertain the equilibrium level of real GDP by the point at which the aggregate or total expenditures within the economy are equal to the amount of output produced.
Question 2 Macro-economic takes a broader view of the economy, which means that it requires to juggle various concepts consisting the three macro-economic objectives of low inflation, growth and low unemployment along with the elements of aggregate supply, aggregate demand and wide array of policies decisions and economic events. The aggregate demand or supply model is one of the most effective tools in economics as it helps in providing an overall framework for bringing these factors together in one diagram (Bober, 2016). In addition to this, the aggregate demand or aggregate supply is flexible enough to accommodate both the Keynes' law approach – focusing an aggregate demand and the short run, while also consisting the Say's law approach focusing on aggregate supply and the long run. a) if Reserve Bank raises the official cash rate, then it will fall in the general level prices as bank increase the cash rate by which central bank charges on overnight loans to commercial banks. On the other hand, GDP of the country will also fall if Reserve Bank raises the official cash rate. (b) If the government embarks on a major infrastructure spending programme then the GDP will be increasesasagreaternumberof peoplewillbeattracted towardsthecountrybecauseof infrastructure. On the other hand, the general level of prices also increases as spending on infrastructure program. (c) If the Chinese economy falls due to recession then the GDP of the country rises as people will start purchasing from Australia as China occupies large no. of market so by the economic fall it will help to increase the GDP as well as the general level of prices would rise as the purchasing power of the people increase. (d) Business confidence in future profitability increases significantly than it will rise the GDP as a greater number of people are being employed. On the general level prices would rise because of positive relation between supply and price (Lehmann, Ledezma and Van der Linden, 2016). (e) If the world oil prices are rise then the GDP would fall as the prices of oil rises. On the other hand, general level of prices would fall if the world oil prices rise as it is excepted it will affect the purchasing power of the people. Question 3 National incomeAggregate consumptionAggregate expenditure 10034605000 20035205100 30035805200
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40036405300 50037005400 60037605500 According to the above table it can be concluded that the Aggregate consumption and expenditure increases with the increase in national income. The rise in aggregate consumption and aggregate expenditure is constant with the increase in income of the people. It clearly determines the relationship between aggregate consumption, expenditure and the national income. In the economy. On the other hand, this relationship also describes that the economic stability is highly linked with the income, consumption and expenditure level of the nation. Question 4 Gross domestic Product is an indicant of a society's standard of living, but it is only abrasive indicator because it does not directly account for environmental quality, leisure, levels of education and health etc. Standard of living is a wide term that comprises various factors such as some that are sold in the market and some are not. The level of GDP per capita for example it captures some of what we mean by the term standard of living as illustrated by the fact that most of the migration in the world consists individuals who are moving from nations with relatively low GDP per capita to nations with relatively high Gross domestic product per capita (Laibson and List, 2015). In some manner the increase in gross domestic product actually understates the real rise in the standard living for instance, the typical work week for workers in the society has fallen over the last century from about 60 hours per week to less than 40 hours per week. Life health and expectancy have risen dramatically, and so has the average level of education. Even though GDP does not measure the wider standard of living with any precision, it does measure manufacturing properly and it does indicate when a nation is materially worse off or better in terms of income and jobs. In most nations, a higher GDP per capita occurs hand in hand with various other improvements in everyday life along different dimensions such as health, environmental and education protection.
REFERENCES Books and Journals Auclert, A. and Rognlie, M., 2018.Inequality and aggregate demand(No. w24280). National Bureau of Economic Research. Bober, S., 2016.Alternative Principles of Economics. Routledge. Jarrow, R. A., 2018. Equilibrium. InContinuous-Time Asset Pricing Theory.(pp. 263-273). Springer, Cham. Laibson, D. and List, J. A., 2015. Principles of (behavioral) economics.American Economic Review.105(5). pp.385-90. Lehmann, E., Ledezma, P. L. M. and Van der Linden, B., 2016. Workforce location and equilibrium unemployment in a duocentric economy with matching frictions.Journal of Urban Economics.91.pp.26-44.
APPENDIX
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