Eco2103 Macroeconomics | Economic Growth Assessment Answers

Answer:

Analysis of Topic 1 

Article Source

U.S. 4% GDP Growth Seen More ‘Luck of the Draw’ Than New Reality

https://www.bloomberg.com/news/articles/2018-07-23/u-s-4-gdp-growth-seen-more-luck-of-the-draw-than-new-reality

Article Summary

The economy of United State has attained a growth rate of 4 percent in the second quarter. This is so far the highest growth rate since 2014. The economy growth is stimulated by cut in tax, expansion of trade and increase in inventories in the last quarter of 2018 (bloomberg.com, 2018). The economic expansion however tends to settle down at a less specular pace.

Analysis of the Article

Aggregate output of a nation is measured by the composite measure named Gross Domestic Product. GDP of a nation captures the monetary value of produced goods and services within the nation. There are different ways of computing GDP of a nation. By expenditure method, Gross Domestic Product is represented as a sum of consumption expenditure, investment expenditure, government expenditure and net export. Change in any one of these components lead to a change in measured GDP and growth prospects (Mankiw, 2014). The higher GDP growth of United State is not generated from a single factor. Multiple factors are at play that stimulate GDP and economic growth of US.

The first component of economic growth is the growing consumption spending. The fiscal stimulus given in form of a cut in taxes helps to increase disposable income of the consumer (Gottheil, 2013). This in turn lead to a higher spending in the economy and higher growth.

Figure 1: Economic growth in United State

(Source: bloomberg.com, 2018)

Another two components adding to economic growth are volatile inventory investment and increase in Soybean export beyond tariff retaliation between US and China. However, the matter of concern is that the 4 percent growth rate is not a steady growth given the current state of the economy (bloomberg.com, 2018). Government of US is planning to take contractionary policies to bring back economic growth to the stable pace.

Analysis of Topic 2

Article Source

China's consumer prices to rise 1.8 pct in 2018: economic planner

https://www.xinhuanet.com/english/2018-07/25/c_137347129.htm

Article Summary

Consumer Price Index, a measure of tracking inflation in China is expected to increase by 1.8 percent in 2018. China aims to maintain an inflation rate of 3 percent same as that in the previous year (xinhuanet.com, 2018). The general price level in China is expected to remain stable which will help to maintain a stable growth rate.

Analysis of the Article

The in incidence of a gradual increase in the general price level is termed as inflation. It is the percentage increase in the general price level. Very high inflation rate has several adverse effect the economy. It reduces purchasing power of people if nominal income remains unchanged. With a decline in purchasing power standard of living decline as well. The two main forms of inflation are demand pull inflation and cost push inflation. In case of demand-pull inflation, there is an increase in demand for goods and services. Given the supply of goods constant, increase in demand lead to an increase in prices. With cost-push inflation, cost of production increase due to an increase in factor cost. Producers then increase price to maintain their profit margin (Johnson, 2017).

In China, surge in the international oil price has worked as a main stimulatory factor CPI growth nearly equals 2 percent in the first six months of this year (xinhuanet.com, 2018). Oil is considered as one of the main inputs in many industries. An increase in international oil price leads to an increase in cost of production in these industries. In response to higher cost aggregate supply contract pushing up prices.

Analysis of Topic 3 

Article Source

U.S. Payrolls Rise 213,000; Wage Gains Slow, Unemployment Up

https://www.bloomberg.com/news/articles/2018-07-06/u-s-payrolls-rise-213-000-wage-gains-slow-unemployment-up

Article Summary

The labor market in United State is currently experiencing an unemployment rate from a sustained low unemployment rate for a past 18 period. Along with high unemployment, wage growth is unexpectedly slow. More people are entering in the labor force (bloomberg.com, 2018). This increase jobless rate. The condition of labor market might have led Fed to ease interest rate hike.

Analysis of the Article

Unemployment is a condition in the labor market that signifies people who are incapable of finding jobs. There are three conditions that defines unemployment. Unemployment is defined in terms of desire to work, ability to work and active job search. Labor force of an economy involve both employed and unemployed people belonging to the working age population that is portion of population above the age of 15 (Bernanke, Antonovics & Frank, 2015).

Figure 2: Trend in US pay-rolls

(Source: bloomberg.com, 2018)

There is a decline in treasury yield along with a decline in value of dollar. The future stock however increase indicating less pressure on Federal Reserve to raise the interest rate. Fed can take an expansionary policy considering the condition of the labor market. Jobless rate in United State has increased to 4 percent. As the jobless rate surpass the estimate of central bank, the bank should take expansionary policy to ease the labor condition of labor market. The intense trade war also threatens economic growth in United State which can further aggravate the problem of unemployment and slow growth in wages (Gottheil, 2013).

Another concern for the labor market in the decline in the supply of qualified workers. This can slow the gain in employment in the economy.

Analysis of Topic 4

Article Source

Gross fixed capital formation rises 6.2 pct in 2017

https://www.theedgemarkets.com/article/gross-fixed-capital-formation-rises-62-pct-2017

Article Summary

The Gross Fixed Capital Formation in Malaysia has increased to 6.2 percent. The growth capital formation has been resulted from a steady growth in both manufacturing and service sector in Malaysia. Growth in services like transportation, communication and information ensures a growth in service sector (theedgemarkets.com, 2018). Manufacturing growth are ensured by progress in electrical, optical product and transportation equipment.

Analysis of the Article

In economics, investment is defined as the addition to the existing stock of capital. This is the creation of new capital goods and housing. Firms invest in capital goods in order to increase profit. Firms buy new capital by following Cost-Benefit Principle. Cost refers to the cost of using machines and other capital goods. Benefits from an investment is measure by the marginal product of capital. Firms make new investment if the benefits exceed cost (Bernanke, Antonovics & Frank, 2015).

The service sector in Malaysia has accounted a growth rate of 9.6 percent. The major services in Singapore include transportation and storage, communication activity and information. All these services require heavy investment in capital goods (Mankiw, 2014). Therefore, an expansion of these sector adds to the gross fixed capital formation of the nation.

In the manufacturing sector, industries that have accounted a high growth rate include electronic and electrical components, optical and transport equipment. Investment in these industries further contribute to an increase in capital formation. Overall growth has been strengthening due to a noticeable growth rate in petroleum, rubber, chemical and plastic products (theedgemarkets.com, 2018).

The recorded progress in manufacturing and service sectors heavily relying on capital goods lead to an increase in capital formation in the economy of Malaysia.

Analysis of Topic 5

Article Source

U.S. Business Cycle Risk Report - 24 July, 2018

https://seekingalpha.com/article/4189431-u-s-business-cycle-risk-report-24-july-2018

Article Summary

The geopolitical risks and trade tensions possess a potential risk on economic growth in the second quarter. With a projected decline in economic growth, the economy is likely to reach to deceleration phase of the business cycle. It however remains unclear whether the projected easing of the economy should be considered as a noise or a warning sign (seekingalpha.com, 2018).

Analysis of the Article

The economic growth of a nation is unlikely to follow a smooth trend. Instead, it fluctuates in a cyclical manner. The fluctuation in the trend GDP growth is broadly classified into four different phases- expansion, peak, contraction and trough. In the phase of economic expansion economic growth increase steadily along with an increase in employment and prices. Following continuous expansion, the economy reaches to a point of where growth is maximized known as peak. From this point economic activity declines gradually leading to a decline in economic growth, employment and prices (Goodwin et al., 2015). The slowdown stops as the economy reaches to the lowest point of growth known as trough.

Figure 3: Phases of business cycle

(Source: Bernanke, Antonovics & Frank, 2015)

Economic growth of US in the second quarter has been ended on a healthy state. The economy in the last three months picked up to 0.16. The growth rate is though lower than the recent peak rate but it is way above -0.70, a rate that signal beginning of a recession 9 seekingalpha.com, 2018). In recent years, the trade tension between US and China has been accelerated. This might put economic growth of US in trouble leading to a slow-down in economic activities. However currently the economy is in a pace of economic expansion. In fact, the economy is growing by more than double as compared to its first quarter growth rate.  

Conclusion 

The report discusses articles on some important macroeconomic theories. The US economy has accounted an astonishing growth rate in the last quarter mainly due to expansion in consumption spending, inventory investment and trade expansion. In China, the CPI inflation has grown at a rate of 1.8 percent with indication of a fairly stable price level in thus year. Rising unemployment and slow wage growth has now become one of the major concern for US economy. The capital formation has gained momentum in Malaysia following an expansion of manufacturing and service sector. Finally, the ongoing trade war and geopolitical risk continues to possess a threat in the stable growth path of US.

References 

Bernanke, B., Antonovics, K., & Frank, R. (2015). Principles of macroeconomics. McGraw-Hill Higher Education.

Chandra, S. (2018). U.S. 4% GDP Growth Seen More ‘Luck of the Draw’ Than New Reality. Retrieved from https://www.bloomberg.com/news/articles/2018-07-23/u-s-4-gdp-growth-seen-more-luck-of-the-draw-than-new-reality

China's consumer prices to rise 1.8 pct in 2018: economic planner - Xinhua | English.news.cn. (2018). Retrieved from https://www.xinhuanet.com/english/2018-07/25/c_137347129.htm

Dmitrieva, K. (2018). U.S. Payrolls Rise 213,000; Wage Gains Slow, Unemployment Up. Retrieved from https://www.bloomberg.com/news/articles/2018-07-06/u-s-payrolls-rise-213-000-wage-gains-slow-unemployment-up

Goodwin, N., Harris, J. M., Nelson, J. A., Roach, B., & Torras, M. (2015). Macroeconomics in context. Routledge.

Gottheil, F. (2013). Principles of macroeconomics. Nelson Education.

Gross fixed capital formation rises 6.2 pct in 2017. (2018). Retrieved from https://www.theedgemarkets.com/article/gross-fixed-capital-formation-rises-62-pct-2017

Johnson, H. G. (2017). Macroeconomics and monetary theory. Routledge.

Mankiw, N. G. (2014). Principles of macroeconomics. Cengage Learning.

Picerno, J. (2018). U.S. Business Cycle Risk Report - 24 July, 2018. Retrieved from https://seekingalpha.com/article/4189431-u-s-business-cycle-risk-report-24-july-2018