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Economic Impact of Disease and Trade War

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13 views3 pages

Economic Impact of Disease and Trade War

Uploaded by

XinhXan.00 Béiuu
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd

Macroeconomics

Practical exam

Question 1: Disease X occurred and severely affected the ABC country. Disease X has a
mortality rate of up to 40%. The number of deaths has exceeded 28,000.
1.1. Among the five factors determining long-term economic growth in ABC, such as physical
capital, human capital, productivity, technology, and institutions, which factor(s) do you think
is/are most affected by the disease? Explain why.
1.2. How will the aggregate supply and aggregate demand of ABC’s economy be affected?
Provide clear reasons for changes in aggregate supply (short-term and long-term) or aggregate
demand, and draw the AS-AD graph to illustrate.
1.3. A vaccine for Disease X has been developed and widely used. As a result, the disease is
controlled. Explain the effects on aggregate supply and aggregate demand, and draw the AS-AD
graph to illustrate.

1.4. The chart below illustrates the relationship between the GDP of country ABC and the price
level using the aggregate supply - aggregate demand model. It shows that the aggregate supply
curve (AS) intersects the aggregate demand curve (AD) at the potential output level (the
economy is at full employment). Assume that a shock causes the aggregate demand to shift to the
right. What will happen to the GDP and price level? Draw an illustration.
Question 2: President Donald Trump's administration implemented trade policies with China,
imposing tariffs on goods imported from China. In response to the U.S. policy, China:
1. Increased tariffs on goods imported from the U.S.
2. Devalued its currency (Yuan - Renminbi).
3. Subsidized export businesses.
4. Redirected exports to third countries to avoid U.S. tariffs.
This trade war resulted in the sharp decline of the U.S. stock market and a wave of investment
cuts by businesses across the U.S. On the consumer side, due to the rising prices of goods
because of U.S. tariffs, especially for middle and lower-income groups, there was a heavy
reliance on essential imported goods from China for daily needs. Domestic prices also increased
because businesses depend on cheap raw materials from China. As a result, U.S. households had
to cut back on spending due to the wealth effect.

2.1. Do you think China's policies were effective in responding to the trade war? Knowing that
China's export value to the U.S. is tremendous so that the tariff barriers would cause significant
damage to China.
2.2. Assuming the economy is at long-term equilibrium. Using the AS-AD model, illustrate and
analyze the short-term and long-term shifts of the U.S. economy affected by the economic shock
from the U.S.-China trade war (a demand shock). Specifically, explore the two following
scenarios:
 Scenario 1: The U.S.-China trade war ends soon.
 Scenario 2: The U.S.-China trade war drags on, and the economy enters a long-term
recession. Point out that the economy will fall into a long-term recession without
government intervention.
2.3. Do you think the government should use fiscal policy, monetary policy, or both to address
the recession? (Specify each policy and provide examples if possible).

Question 3: An economy has 3 groups of products: A, B, and C. Prices are calculated in $/kg,
while output is measured in tonnes (kg).

Year (i) P A ,i Q A ,i PB ,i QB ,i PC ,i QC ,i
2021 1 80 2 120 3 150
2022 2 120 4 150 6 180
2023 3 150 6 180 9 210

Calculate:
3.1. Nominal GDP (Yn) for each year.
3.2. Real GDP (Y) and the GDP Deflator Index (DFI) for each year, with 2021 as the base year.
3.3. The GDP growth rate (g) for 2022 and 2023.
3.4. The inflation rate (π) based on the GDP Deflator Index for 2022 and 2023.
Give you opinions:
3.5. Suppose we do not consider price changes but focus only on output. Can we conclude
whether the total output of a year has increased or decreased compared to the previous year?
How is this related to the change in Real GDP?
3.6. Do you think Real GDP can be a good indicator of a country’s standard of living?
3.7. I love the subject of Macroeconomics because it provides important and useful knowledge
that helps me understand more about the movements of the macroeconomy both domestically
and globally. In your opinion, is this perspective correct or incorrect?

Common questions

Powered by AI

The outbreak of Disease X reduces aggregate supply in the short term due to the loss of labor and decreased productivity. Aggregate demand may also decrease as consumer confidence falls and spending declines. In the long term, if the disease continues to impact the population, the economy could experience a sustained reduction in potential output, leading to a leftward shift in both the aggregate supply and demand curves .

The introduction of a vaccine for Disease X increases aggregate supply as the workforce recovers, restoring productivity and human capital. Consequently, aggregate demand also rises as consumer confidence improves, leading to higher spending. This simultaneous increase in supply and demand can help the economy return to its pre-disease equilibrium, promoting economic recovery .

In the short term, the U.S.-China trade war causes a leftward shift in aggregate demand due to declining consumer confidence and reduced spending as prices rise from tariffs. If the war ends soon, demand can recover quickly, restoring equilibrium. However, if it continues, the prolonged strain could lead to a leftward shift in aggregate supply, causing a long-term recession without intervention as businesses face high costs and reduced consumption .

The government should employ both fiscal and monetary policies. Fiscal policy could involve increasing government spending or cutting taxes to stimulate demand. Monetary policy might include lowering interest rates to encourage borrowing and investment, or using quantitative easing to increase money supply. These measures together can help counteract the recessionary effects of a trade war .

Ignoring price changes, an increase in real GDP typically indicates that total output has risen, suggesting economic growth. Real GDP is adjusted for inflation, making it a better indicator of changes in actual production than nominal GDP. While real GDP can reflect improvements in standard of living, it doesn't account for distribution of income, non-market transactions, or externalities, limiting its comprehensiveness as a sole measure .

The GDP growth rate is calculated as the percentage change in real GDP between two consecutive years. Formula: ((Real GDP in the current year - Real GDP in the previous year) / Real GDP in the previous year) * 100%. This measure indicates the economy's expansion or contraction over time. Positive growth reflects increased production and potential improvements in economic conditions .

Macroeconomics is indeed valuable for understanding economic dynamics, both domestically and globally. It provides tools to analyze GDP, inflation, unemployment, and fiscal policies, offering insights into how different economies interact and affect each other. This understanding helps policymakers and businesses make informed decisions and predict economic trends .

China's responses, including increased tariffs on U.S. goods, currency devaluation, and subsidies for export businesses, aimed to mitigate the impact of U.S. tariffs. While these measures were somewhat effective in cushioning the economic blow, the significant export volume to the U.S. means that tariffs still posed considerable damage. Redirecting exports to other markets helped, but the U.S. remains a critical trade partner, so the long-term effectiveness of these measures was limited .

Disease X primarily affects human capital and productivity in ABC country. The high mortality rate of 40% significantly reduces the workforce, decreasing the available human capital. This loss of human resources can hinder productivity levels as there are fewer workers to produce goods and services. Additionally, the psychological and health impacts on the surviving population can further reduce productivity .

Nominal GDP for each year is calculated by summing the products of the price and quantity of each product. For example, in 2021: Nominal GDP = (PA,2021 * QA,2021) + (PB,2021 * QB,2021) + (PC,2021 * QC,2021). This is repeated for each subsequent year using respective prices and quantities .

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