Explain reasons the aggregate demand curve slopes downward

Reference no: EM131959061

Assignment: Economic Principles

Task 1: GDP, economic growth, unemployment and inflation

1. What is the gross domestic product of a country? What is meant by 'intermediate goods' and are they included in the measure of GDP? Give an example of a good that could be an intermediate good or a final good depending on the situation. Explain your answers.

- Maximum number of words 120

Suppose that the following table represents the goods and services produced in a very simple closed economy in 2016. Using the information in the table below to answer question 2.

Product	Quantity	Price
Steel	1000	$100
iPods	5000	$300
Cars	500	$25 000
Legal Services	100	$2000

2. Assume that steel is used as an input in the production of cars. Using that information, calculate the GDP for the year 2016? Explain your answer in words and show all calculations. Maximum number of words 120 plus calculations

For each of the following, indicate if the person would be classified as employed, unemployed, or not in the labour force and why:

3. a 45-year-old person who has been made redundant in their current position, is looking for work and is able to start immediately, but does not have the skills required by industry and needs retraining. Maximum number of words 40

4. a person who is working for 10 hours a week paid work in a supermarket while studying full time. The person is looking for full time work but cannot start until they finish their study in 3 months time. Maximum number of words 40

Refer to the following table and answer question 5.

	Persons
Employed	8000
Unemployed	500
Not in the labour force	4000

5. Define and calculate the unemployment rate (show working). What is the labour force participation rate. Maximum number of words 40 plus calculations

6. Suppose an economy has only three goods, and the typical family purchases the amounts given in the following table. If 2005 is the base year, then, what is the CPI for 2015? Show all working out and explain your answer. Maximum number of words 40 + calculations.

Product	Quantity (2005)	Price (2005)	Price (2015)
Computers	2	$1700	$1200
Books	50	$25	$30
Burgers	150	$1.00	$2.00
Total

Task 2: Business Cycle and Aggregate Demand & Supply

1. Explain the three reasons the aggregate demand curve slopes downward. Maximum number of words 100

Explain how each of the following events in questions 2, 3 would affect the aggregate demand curve.

2. Consumers become more pessimistic about the future economic growth as unemployment rises. No graph required. Maximum number of words 50

3. Domestic prices increase, which decreases exports. No graph required. Maximum number of words 50

Read the following excerpt and answer the question 4

Struggling household sector weighs on GDP outlook

A struggling household sector - which is garnering the smallest slice of the nation's economic pie in decades - is casting renewed doubts over official predictions of a near-term rebound from a first-quarter dip in growth. Hampered by a series of headwinds in the opening months of the year, including bad weather that slowed both construction work and export shipments from northern Australia, annual growth faltered to the weakest pace since the 2009 downturn.

Citigroup analyst Joshua Williamson said the accounts showed the wages share of GDP was at the lowest level since 1964.......

"The flip side of the weak wages share is the highest profits share of GDP since December 2011," he said. "Hopefully the recent rebound in profits will feed into a stronger appetite for hiring and investment but so far the signs remain at best mixed."

Article: Struggling household sector weighs on GDP outlook by Jacob Greber.

4. Given the information in the above article, what components of GDP have been affected? How would this affect Aggregate Demand? Using the AD/AS framework, and assume that the economy was originally in the long run equilibrium, show what happens in both the short run and the long run. Including a graph in your answer- Maximum number of words 250.

Reference no: EM131959061

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