Concepts and Problems in Macroeconomics Essay Example | Topics and Well Written Essays - 1000 words

Concepts and Problems in Macroeconomics - Essay Example Japan is a consumer society where consumer spending fuels the economy. Analyzing the relationship between consumer confidence, GDP, and unemployment can give some insight into how closely perceptions are aligned with reality. Figure 1 indicates the relationship between the GDP and confidence levels. Both employment confidence and consumer confidence are closely related. However, the Figure 1 (Data from Worsley 2007) confidence levels trail the change in GDP by 12 months. The GDP bottomed out in 2002, but confidence did not hit a minimum until 2003. Likewise, the decline in 2005 did not impact confidence levels until the middle of 2006 when employment confidence fell and consumer confidence flattened out. Figure 2 shows the relationship between relationship between GDP and real unemployment. The steep rise in GDP between 2002- 2004 precipitated a Figure 2 (Data from Japan: Unemployment rate 2007) steady decline in the real unemployment rate beginning in 2003 and continuing through 2006. The Japanese public is keenly aware of the unemployment rate and is reflected in their spending confidence. The public's real measure of economic health is employment and trails the change in GDP by 12-24 months. Predicting consumer confid... By monitoring the GDP, Japan can expect the unemployment rate to follow the same trend in a period of 12-24 months later. Confidence levels, both consumer and employment, will track the unemployment rate directly. Investors can take advantage of this situation by preparing for an upturn in spending 12-24 months after the GDP begins to move upward. GDP 1. 1. Calculate real GDP for 2005 and 2006 using 2005 prices. By what percent did real GDP grow 2005 GDP = (90*18) + (180*100) = 1620 + 18000 = $19,620 2006 GDP @ 2005 prices = (100 *18) + (190*100) = 1800+19000 = $20,800 GDP Growth = (20,800 - 19620) / 19620 = .0601 = 6.01% 2. Calculate the value of the price index for GDP for 2006 using 2005 as the base year. By what percent did prices increase (90*20) + (180*110) = 1800 + 19800 = $21,600 PI = (21600 - 19620) / 19620 = 1980 / 19620 = .1009 = 10.09% 3. Now calculate real GDP for 2005 and 2006 using 2006 prices. By what percent did real GDP grow GDP 2005 @ 2006 prices = $21,600 GDP 2006 = (100*20)+(190*110) = 2000+20900= 22,900 Growth = (22900 - 21600) / 21600 = 1300/21600 = .0601 = 6.01% 4. Review the GDP information for the past few years from the Bureau of Economic Analysis's Website. Provide a brief summary of the GDP trends over that timeframe and discuss two or three events which may have caused these trends. GDP has generally steadily risen in recent history. It stagnated in the early 70s due the oil embargo. Since Q2 in 2001, the GDP has risen every quarter except Q3 in 2001. This was probably a result of 9/11. The GDP had recovered by Q1 of 2002 and has had steady growth through this period of deficit spending. Hong Kong and