The economy of Euphoria has the following economic data.
Year
2016
2017
2018
Nominal Gross Domestic Product ($ billions)
1,625
1,675
1,697.50
Real Gross Domestic Product ($ billions)
2015 = 1,568.5
1,625
1,649.75
1,702.50
GDP deflator
100
101.53
99.71
% change in real Consumption spending
3
1.75
2.8
% change in real Investment spending
2
-10
5
Net exports ($ billions)
-3,000
-6,000
-12,000
Unemployment rate (%)
5.3
5.8
5.2
Natural rate of unemployment
4.8
4.8
4.8
Index of production costs (2015 = 100)
104
105
104
Productivity index (2015 = 100)
101
103
106
Export price index (2015 = 100)
104
101
96
Import price index (2015 = 100)
106
108
104
Production costs are costs of raw materials, wages, capital
goods and services.
Productivity index relates to all production inputs.
Examine the data relating to the economy of Euphoria above and
answer the following questions.
Q1. What phase of the business cycle
was the economy in 2018? Briefly give two reasons for your
answer.
Q2. What was the likely cause of the
change in the unemployment rate in 2018? What type of
unemployment is likely to exist in Euphoria in 2018? Explain
your
answer.
Q3. Identify and explain the likely cause of inflation /
deflation in 2018?
Include in your answer the contribution that export and import
prices made to inflation / deflation in 2018.