DMS ECO2103 Macroeconomics CA1 Individual Assignment Analysis

This economics assignment analyzes various macroeconomic concepts and their real-world applications, focusing on GDP, inflation, unemployment, and economic fluctuations. The assignment examines the economic performance of Saudi Arabia, New Zealand, the USA, the UK, and South Africa, drawing on articles from 2018. It explores how government spending, tax revenues, and monetary policies influence GDP growth, inflation rates, and unemployment levels. The analysis includes discussions of cost-push inflation, the labor market, stock market trends, and the impact of fiscal and monetary policies on aggregate demand and economic stability. The assignment references economic principles and theories to explain the observed trends and outcomes in the selected countries, highlighting the importance of effective macroeconomic management.

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DMS ECO2103
MACROECONOMICS
CA1 INDIVIDUAL ASSIGNMENT

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Table of contents
1.0 Chapter 1- Introduction to Macroeconomics, GDP and Economic Growth........................3
2.0 Chapter 2- Inflation and the Price Level..............................................................................3
3.0 Chapter 3- Wages and Unemployment................................................................................4
4.0 Chapter 4- Saving, Capital Formation, Financial Markets and Financial System...............4
5.0 Chapter 5- Short-term Economic Fluctuations and Aggregate Expenditure.......................5
Reference....................................................................................................................................6

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1.0 Chapter 1- Introduction to Macroeconomics, GDP and Economic Growth
1.1 Source- "Moody’s Forecasts Bigger GDP Growth for Saudi Economy, 2018
1.2 Summary- The article states that one of the most popular credit rating companies,
Moody's which evaluates the performance and economy of the different country has
increased the projected growth rate of the kingdom. As per the article, the financial
management of the government has been exceptional in the last few years. Expenditure of the
government on diversified sectors other than oil has increased its potentiality to contribute
more towards the economy. Adequate collection of revenues and the expenditure of the
government have also developed the ground for future stability and impressive performance
of the economy.
1.3 Analysis
The GDP of any country is divided into four components. These are Consumption,
Investment, Government spending and the Net export. In the case of Saudi Arabia,
government spending in the diversified sector has given the economy and opportunity to use
the multiplier effect that has the capability to increase the GDP in the next period (Mankiw,
2014). Apart from that, the component of government spending has an endogenous part
which is the tax revenue of the government. According to the article, proper collection of tax
revenue by the government justifies the claims of the forecasts done by Moody’s.
2.0 Chapter 2- Inflation and the Price Level
2.1 Source- Inflation surges to highest level in a year, 2018
2.2 Summary- This article talks about the increase in inflation in the economy of New
Zealand. According to the article, inflation of the economy has been the highest since the last
year. Along with the annual inflation, consumer price index (CPI) has also surged in the last
three months. The prices of fuel and energy have been the main contributor to the increase in
the inflation of the economy (Littleboy, Taylor & Weerapana, 2016). Apart from that, house
rents, local body rents and the value of the currency of New Zealand have also played its role
to increase the inflation of the economy.
2.3 Analysis- According to the principle of economics, inflation can be of two main types
which are demand-pull inflation and cost-push inflation. In this case of New Zealand, the

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main contributors to inflation are fuel and energy prices which also accounts for 4% of the
CPI basket. Therefore, this inflation of New Zealand is an example of cost-push inflation as
fuel and energy are used in most of the economic activities that produce value for the
economy (Sherman, Meeropol & Sherman, 2018). The reserve bank of New Zealand, in order
to manage the inflation, has held the cash rate as high money supply in the economy can
further increase the inflation as shown by the quantity theory of money.
3.0 Chapter 3- Wages and Unemployment
3.1 Source- Job creation, wages slip in September as unemployment falls to 48-year low,
2018
3.2 Summary- The article states that, the unemployment rate of the USA has come down to
3.7% which is the lowest in the records of 48 years. The economy has added roughly 13400
new jobs in the economy in almost all the sectors. The forecasts show the job creation will
further increase in the future. The effects have also been seen in the wages of the labours.
Experts have stated that, shrinking skilled workers in the country have increased the labour
demand and hence the wages have gone up. The competition among employers can further
increase the wage and reduce the unemployment rate in the economy.
Figure 1: labour market

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(Source: Cohn, 2015)
3.3 Analysis- The labour market is cleared by the wage rate similar to the case of the market
in general that is cleared by price. In the case of the USA, the economy is operating at the
boom phase of the business cycle and hence the economy is tending towards full
employment. Consequently, the shrinking pool of workers is compelling the companies to
increase hiring and the wage rate. In the labour market, the labour demand curve has shifted
to the right side eventually increasing both the employment and the wage rate of the US
labour market.
4.0 Chapter 4- Saving, Capital Formation, Financial Markets and Financial System
4.1 Source- Why are stock markets falling and how far will they go? , 2018
4.2 Summary- The stock market of the UK is falling and since May 2018, it has fallen by
about 10%. The market has shown heavy sell-off of stocks of different markets which
eventually reduced the level of investments in various companies of the UK. According to the
reports, the experts state that, the reduction in the size of the stock market of the UK is due to
the increase in the interest rates of the US economy which can further increase the payment to
the US. The impressive recent economic growth of the US can also provide high competition
in the future and hence the investors are opting to exit the stock market of the UK.

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Figure 2 : US economic boom
(Source: De, 2018)
4.3 Analysis- The US economy is booming at this moment and the government has increased
the interest rates in order to control the inflation rate. Given the high inflation rate of the US,
the investors are finding it better to invest in other markets in the US. Apart from that, low
tax in the US is also offering a higher disposable income for the consumers and hence
investors in the UK are exiting the market in a large number. According to economics, while
on one hand higher interest rates provided by the Federal Reserve is likely to increase the
gain of investors, the lower tax rate can also augment the capital formation of the investors
and hence the economy of the US is giving a Knock on effect on the stock market of the UK.
5.0 Chapter 5- Short-term Economic Fluctuations and Aggregate Expenditure
5.1 Source- The root cause of SA’s economic problems is its macroeconomic policies,
2018
5.2 Summary- The article states that, the economy of South Africa has lost its charm over
time due to the inadequate fiscal and monetary policies of the government. The article has
stated the policies of the government as orthodox that has failed to match the expenditure of

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the government with the increasing population of the country. Strict monetary policies have
resulted in the contraction of the economy. Apart from that, fiscal policies such as the change
in the interest rates have also been used without motives which have failed to have an effect
on the operation of the economy.
Figure 3: The aggregate demand and the business cycle
(Source: Course, 2017)
5.3 Analysis- The economy of South Africa is facing a lack of boost from the side of the
government. Tight monetary policy reduces the money supply and hence the consumption in
the economy. Higher government spending will shift the aggregate demand to the right side
which eventually will increase the output of the economy (Terra, 2015). Along with the
government spending the interest rates of the banks can also be regulated so that inflation can
be controlled. The aim of a government dealing with macroeconomy is to have a healthy
aggregate demand in the economy which the government of South Africa has failed.

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Reference
Bartash, J. (2018). Job creation, wages slip in September as unemployment falls to 48-year
low. Retrieved from https://www.marketwatch.com/story/unemployment-rate-falls-to-
49-year-low-of-37-2018-10-05
Cohn, S. M. (2015). Reintroducing Macroeconomics: A Critical Approach: A Critical
Approach. Routledge.
Course, I. D. (2017). Principles of Macroeconomics. Instructor.
De, P. K. (2018). Principles of Macroeconomics.
Inflation surges to highest level in a year. (2018). Retrieved from
https://www.radionz.co.nz/news/business/368786/inflation-surges-to-highest-level-in-
a-year
Littleboy, B., Taylor, J. B., & Weerapana, A. (2016). Macroeconomics Principles and
Practice with Student Resource Access 12 Months. Cengage AU.
Mankiw, N. G. (2014). Principles of macroeconomics. Cengage Learning.
Moody’s Forecasts Bigger GDP Growth for Saudi Economy. (2018). Retrieved from
https://aawsat.com/english/home/article/1434561/moody%E2%80%99s-forecasts-
bigger-gdp-growth-saudi-economy
Partington, R. (2018). Why are stock markets falling and how far will they go?. Retrieved
from https://www.theguardian.com/business/2018/oct/11/why-are-stock-markets-
falling-and-how-far-will-they-go
Sherman, H. J., Meeropol, M. A., & Sherman, P. D. (2018). Principles of Macroeconomics:
Activist Vs. Austerity Policies. Routledge.
Terra, C. (2015). Principles of International Finance and Open Economy Macroeconomics:
Theories, Applications, and Policies. Academic Press.
The root cause of SA’s economic problems is its macroeconomic policies. (2018). Retrieved
from https://city-press.news24.com/Voices/the-root-cause-of-sas-economic-problems-
is-its-macroeconomic-policies-20181023

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