Part 2: Macroeconomic Perspective

1. In Japan, potential GDP is 600 trillion yen and the table shows the aggregate demand and short-run aggregate supply schedules.

a) What is the short-run equilibrium, real GDP and price level?

b) Does Japan have an inflationary gap or a recessionary gap? What fiscal policy can be used to correct this gap?

BUS104 Individual Assignment BUS104 Economics, Individual Assignment, T1 2016 4 2. Using the sources below answer the following questions: ISTAT cuts Italy GDP forecast to -1.4 pc, unemployment to rise Reuters May 6, 2013, 02.06PM IST ROME: Italy's economy will contract by 1.4 per cent this year ... national statistics institute ISTAT forecast on Monday. The latest forecast for 2013 marked a sharp downward revision from a previous projection of -0.5 per cent made in November, reflecting the continued weakness of domestic demand as Italy languishes in its longest recession for 20 years. ... BUS104 Individual Assignment BUS104 Economics, Individual Assignment, T1 2016 5

a) What phase of the business cycle was Italy going through in 2012? Refer to the above sources and economic theory in your answer and demonstrate the phase of the business cycle using an aggregate demand and supply model.

b) Based on the sources above and using your aggregate demand and supply model from

a) describe what happened to the Italian economy from 2012 to 2013? Explain your answer with reference to theory.

c) What was the unemployment rate in Italy in January 2013 and in July 2013 based on the above graphs? What is the labour force participation rate in Italy in January 2013 and July 2013 according to the below data? What do these statistics tell you how employment in Italy has changed? Jan-13 Jul-13 Working age population 40,100,000 40,900,000 Labour force 20,000,000 27,000,000 BUS104 Individual Assignment BUS104 Economics, Individual Assignment, T1 2016 6 3. Go to the following website http://www.tradingeconomics.com/ . Find your country (or a country close to yours) by going to the country tab at the top of the page and briefly answer the following questions. (You will need to find relevant economic data on your country's page)

a) What are the key macroeconomic indicators in your country now?

b) What phase of the business cycle is your country's economy most likely in now? (Hint: Look at the components of aggregate demand) Do not forget to include a reference list for any sources apart from lectures or tutorials. You also need to include in-text references. Please see referencing guides