Macroeconomics Assignment: Analysis of Economic Indicators

This macroeconomics assignment delves into several core concepts. It begins with an application of game theory to a chess scenario, analyzing dominant strategies. The assignment then explores nominal versus real income, the impact of inflation, and the relationship between unemployment and job creation, including the effects of technological advancements and artificial intelligence. It further examines real GDP as a measure of economic welfare, contrasting it with the Human Development Index. The assignment includes an analysis of business cycles, specifically addressing the sales of luxury goods during boom and recession phases. It concludes with a discussion on the definition and functions of money, differentiating it from credit cards. The assignment covers monetary and fiscal policies, including their effects on real GDP and price levels.

Running head: MACROECONOMICS
Macroeconomics
Name of the Student
Name of the University
Student ID

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Table of Contents
Answer 1..........................................................................................................................................2
Answer 2..........................................................................................................................................2
Answer 3..........................................................................................................................................3
Answer 4..........................................................................................................................................4
Reference.........................................................................................................................................6

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Answer 1
Game of Chess B
Knight Bishop
A Queen (Win, Lose) (Win, Lose)
Bishop (Lose, Win) (Lose, Win)
Game theory is applicable in every strategic decision that we take. The theory is not only
useful in business decision making but also effective in the daily life (Aumann 2019). A good
example of decision making under game theory is Chess. Suppose there are two players A and B.
They are in the closing moves in a game of chess. It is observed that if player A, moves Queen
then irrespective of the move B player A will win. However, in the case of player B, winning is
depended on the move of player A. Whatever, be the move of player B, if player A moves
Bishop then B wins. Therefore, for player A, moving Queen is the dominant strategy but there is
no dominant strategy for B.
Answer 2
(a) Nominal income is the total amount of income earned by an individual in a given period. The
income is said to be nominal because it is not adjusted to the change in price of products. It
means that if the nominal income increases it does not mean the individual can consume more.
This is because if the price of a product increases more than the rise of income then the
individual can consume lower amount of the product than before. Thus, it is necessary to include
the concept of price change of product that is inflation. The adjusting nominal income with
inflation gives real income. Suppose, the individual has anticipated the future inflation rate and

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calculated real income in future and found that it will increase by 10%. However, the
unanticipated inflation rate declined and in the future, the real income increases more than 10%.
This rise in real income is unexpected. Real wage and real income are similar and thus increase
in real wage unexpectedly is possible.
(b) Yes, the unemployment rate can rise in a given year even after occurrence of addition of
hundred thousand net jobs. By net jobs means that total job generated after adjusting for lost jobs
in an economy due to shutdown of businesses (Krueger, Mas and Niu 2017). On the other hand,
if the percentage increase in net job is lower than the percentage increase in labour force the
amount of unemployment will rise.
(c) Technological change and artificial intelligence would definitely reduce unemployment as it
makes it easier for a single employee to do work many in a given period. Thus, demand for
manual labour would reduce and hence unemployment occurs. The unemployment would reduce
if the economy is boosted by increase aggregate demand and skill training of the workers is done
in order to reduce structural unemployment.
Answer 3
(a) Real GDP is the inflation adjusted value of total amount of final goods and services produced
in a country in a given period (Jansen, Jin and de Winter 2016). It does not reflect the income of
individuals. In addition to that, health and education status of a country cannot be understood
from the value of real GDP. Human development index (HDI) is a better indicator of welfare of a
country’s population.
(b) In 2016 the real GDP is

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Real GDP= 1.4
101.2
¿ , Real GDP=0.0138 trillion
In 2017 real GDP is
Real GDP= 1.4
104 . 4
¿ , Real GDP=0.0134 trillion
The statement is not factually accurate as it does not adjusted the nominal GDP value with the
price deflator. The economy of Australia has actually declined in real terms.
Answer 4
(a)
Figure 1: Business
Cycle
Source: (Created by the Author)

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The business cycle has two prominent phases, one is boom phase and the other is
recession phase. During boom phase, economy of country grows because investment in the
economy increases along with the rise in employment, income and aggregate demand (de Bondt
and Vermeulen 22018). With high income, individuals consume more. Therefore, the product
sales is high during boom phase. On the other hand, recession phase means low productivity, low
investment and low employment opportunity resulting in low income. Consequently, during
recession phase, people reduce their consumption and thus aggregate demand decreases. Hence,
product sales especially luxury goods remains low during this phase. Car is luxury product and
thus it would sale more during the boom phase than in the recession phase.
(b) Money can be defined as a legal tender which is found in the form of currency note and
coins. Being a legal tender money can be utilized to fulfil any obligations related to financial
matter. It functions as an asset as it can be kept in bank and thereby interest can be earned. In
addition to that, the money cam ne exchanged for goods and services of same value. However,
credit is card is not money because it cannot be exchanged for goods even though it is used for
financial transactions. The transaction by credit card is limited by the issuer of the card and it is
cannot earn interest income and cannot be invested.

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Reference
Aumann, R.J., 2019. Lectures on game theory. CRC Press.
de Bondt, G. and Vermeulen, P., 2018. Business cycle duration dependence and foreign
recessions.
Jansen, W.J., Jin, X. and de Winter, J.M., 2016. Forecasting and nowcasting real GDP:
Comparing statistical models and subjective forecasts. International Journal of
Forecasting, 32(2), pp.411-436.
Krueger, A.B., Mas, A. and Niu, X., 2017. The Evolution of Rotation Group Bias: Will the Real
Unemployment Rate Please Stand Up?. Review of Economics and Statistics, 99(2), pp.258-264.