Economics Homework: Macroeconomic Indicators and Economic Performance

This economics assignment delves into macroeconomic principles, focusing on supply and demand dynamics, market equilibrium, and the impact of factors like real income on market outcomes. Part A analyzes the equilibrium price and quantity, the effects of changes in real income on demand, and the application of the law of supply and demand, including the impact of increased supply and income on market prices and equilibrium. Part B assesses economic performance using macroeconomic indicators such as inflation, unemployment, and exports, specifically focusing on China's economic performance in 2016 and 2017. The assignment explores the characteristics of economic recession and boom phases, the relationship between aggregate demand, unemployment, and exports, and the influence of factors like government debt on economic health. The student utilizes graphical representations and references scholarly sources to support their analysis and conclusions about the state of the economy.

Running head: INTRODUCTION TO ECONOMICS 1
INTRODUCTION TO ECONOMICS
Name
Institution

INTRODUCTION TO ECONOMICS 2
Macro Part A
Question 1
1a)
Equilibrium level shows the market clearing price for goods demanded and goods
supplied. In this case, the equilibrium price is $140 while the equilibrium quantity is 1600
units
1b)
0 400 800 1200 1600 2000 2400 2500
Supply
Demand
140
E0
E1
Demand
AD0
0 400 800 1200 1600 2000 2400 2500
Quantity
140
Supply
Price
AD1

INTRODUCTION TO ECONOMICS 3
Increase in real income raises the purchasing power of the consumers and as a result,
television being a normal good whose demand is subject to increase with increase in income,
the demand for the TV increases and this increase is represented by the shift in demand curve
form AD0 to AD1.The shift in the demand curve also results to the establishment of new
market equilibrium position which is denoted by E1.Consequently,supply in the market will
increase in order to satisfy the excess demand ultimately resulting to the increase in the price
levels.
Question 2
Explanation
The situation here is consistent with the law of supply and demand. Increase in the
supply of bananas in the market will result to a decrease in the demand for bananas since
Quantity
E1
E0
AD
1
SupplyDemand
Q
e’
Qe
AD
0
P
e’
Pe
Price

INTRODUCTION TO ECONOMICS 4
consumers will have more to purchase at their disposal. As a result, demand will fall as
evidenced by the shift in the demand curves above downward to the left i.e AD0-AD1.An
increase in the supply of bananas will not only result to a fall in the demand but will also
result to a fall in prices for the bananas form Pe to Pe’. Overly, the changes above will
ultimately result to the shift on the equilibrium level from E0 to E1.
Effect of increase in people’s income
Increase in people’s income would result to improvement in the people’s purchasing
power in the market thereby resulting to creation of excess demand for the bananas in the
market consequently leading to the shift in the demand curves towards the left. The supply
side of the market would also respond to the newly created excess demand by making more
supplies. This would be depicted by the shift in the supply curves towards the right. With the
increase in real income among the consumers, creation of excess demand will push down the
prices in the market after some time. Equilibrium price level will also fall owing to the shift
in the supply curve. The explanation above is reflected in the illustration below.
D
0
S0
S1
D
1
Q
e’
Q
e
Quantit
y
P
e’
P
e
Price

INTRODUCTION TO ECONOMICS 5
Macro Part B
Question 1
The performance of economy can be determined based on whether recession or boom
based on the main macroeconomic indicators such as inflation, Exports, Gross Domestic
Output and unemployment. Recession refers to the economic phase where a country’s
economy experiences low levels of GDP, low business confidence, high inflation rates, high
rates of unemployment, low levels of exports against imports(Christiano, Eichenbaum and
Trabandt, 2015).On the other hand, boom phase of an economy is characterized by high
growth in the levels of GDP, high levels of business confidence, low inflation levels within
the healthy levels, high rate of employment, and high levels of exports against imports
(Brandt and Rawski, 2014).
Just from the basic explanation of economic recession and economic boom above, the
conclusion about economic performance of china for the year 2016 can be concluded on the
basis of inflation, business confidence and export levels for that year. Right from the
illustration of inflation rate over this period, it can be observed that inflation rate remained at
productive levels over the period (Orphanides, 2003).Healthy inflation results to the creation
of business confidence thereby creating an assurance for optimal returns by investors,
achieved through adoption of business expansion plans.
Similarly, it can be observed that based on the trend of the unemployment curve,
unemployment remained at low levels and further declined later on. This is a sufficient proof
that Chinas economy had experienced boom. Nevertheless, the level of exports remained high
too over the period. Based on the trend of export curves, it can be observed that exports
sharply increased throughout the year. Despite the fact that there was a drop in business
confidence as evidenced by the business confidence curve above, it grew sharply throughout
2006.

INTRODUCTION TO ECONOMICS 6
Question 2
Aggregate demand refers to the total demand for goods and services in the economy.
Aggregate demand is a function of employment, inflation rate and the level of exports.
Unemployment rates remained high between 2005 and 2006.Inflation also fell sharply over
this period. Overly, Chinas exports kept on increasing over this period. Low business
confidence is never healthy for an economy. Low or lack of business confidence not only
lowers a country’s GDP but also hinders growth in employment.
Question 3
The performance of an economy is fundamentally determined by the level of GDP,
inflation, the rate of unemployment, balance of trade, and the level of government against
Gross Domestic Product. Based on Chinas macroeconomic indicators for the year 2017
above, it can be observed that the economy is at boom. This is evidenced by considerably by
a significant fall in unemployment rate (0.5%) relative to the previous period, a significant
improvement in the level of balance of trade (10.06%) and considerably low ratio of
government debt to Gross Domestic Product.

INTRODUCTION TO ECONOMICS 7
References
Brandt, L., Ma, D., & Rawski, T. G. (2014). From divergence to convergence: reevaluating
the history behind China's economic boom. Journal of Economic Literature, 52(1), 45-
123
Christiano, L. J., Eichenbaum, M. S., & Trabandt, M. (2015). Understanding the great
recession. American Economic Journal: Macroeconomics, 7(1), 110-167.
Orphanides, A. (2003). The quest for prosperity without inflation. Journal of monetary
Economics, 50(3), 633-663.

INTRODUCTION TO ECONOMICS 8