Macroeconomics Assigment 1

Assignment 1:

1. The following figure shows a Withdrawls and an Injections function:

U

T

C

R

P

B

A

S

W

J

National Income

W, J

O

a. How much is the national income at the equilibrium

P)

b. Assume that the current level of national income is OA. Describe the process whereby equilibrium will be achieved.

If the national income is OA then to achieve equilibrium income will need to increase to stimulate more imports. The more the imports increase the more deflating demand which will reduce income and spending with income falling causing imports to fall while exports remain the same causing equilibrium.

c. If withdrawals exceed injections what effect will this have on the economy?

If withdrawals exceed injections national income will fall, the unemployment rate will rise, inflation will fall and economic growth will go downwards.

d. Illustrate on the figure the effect of an increase in government spending by an amount UT

W>J- national income will fall

2.

a. Find data for nominal GDP at US dollar current prices with a base year of your choice and calculate real GDP for Australia, France, Germany, Greece, Ireland, Japan, UK, and USA from 2005 to 2014. Present the data on a table.

b. Work out the growth rate for each country for each year from 2005 to 2012.

Plot the figures on a graph. What patterns do you observe?

REAL GDP

NOMINAL GDP

I notice on the graphs that the Nominal GDP has inflated values compares to the Real GDP of each country. The graph patterns remain relatively similar, but for real GDP the $ value is much less than in the Nominal GDPs.

*You can use the following sources:

* Eurostat

* Worldbank

* AMECO