Seasonal Adjustment Consumer Price Index - Myassignmenthelp.Com

Question: Discuss About The Seasonal Adjustment Consumer Price Index? Answer: Introducation The government of a country should impose some policies to control environmental degradation. Those policies will also protect welfare of people and environmental sustainability. On the other hand, a countrys economic growth is measured by its real gross domestic product (GDP). Here, the government is planning to implement a policy to reduce air pollution. According to this policy, factories will reduce their use of dirty fuels. However, after implementing this policy, real GDP of a country might be affected. Moreover, it is very difficult for a government to apply a proper environmental policy (Kraft, 2017). There is a complementary nature between economic prosperity and a healthy natural environment. The standard of living of a country depends on several economical, environmental and political factors. To produce a good or service, various economical factors are needed. These are human capital, physical capital, natural resources and technologies. Moreover, the government plays an important role on production process for a country. Hence, they affect the growth rate of a country by implementing various governmental policies. The chief interest of environmental policy makers is to analyse the economic effects related to these policies. Environmental policy can be seen as a burden on short-term or medium-term economic activities in some traditional approaches. This is because this policy increases production costs without increasing output (Stern van Dijk, 2017). Moreover, it restricts a firms production technologies and total outputs. This traditional environmental policy forces various firms to scarify different inputs to control pollution. Moreover, production technology may also be hampered due to this policy and as a result, performance standard of those firms will be negative. Here, production technology of some factories is based on fuels, which further generate air pollution. Hence, by implementing environmental policy, the government can restrict the use of fuels. This will further change the production technologies for those factories and as a result, total output will be decreased. As total pro duction of a country decreases, real GDP of that country will also be decreased. Hence, in this scenario, environmental policy has a negative impact on a countrys economic growth. However, according to some modern theories, environmental policy actually helps a factory to produce more (Bergstrom Randall, 2016). According to some economists, restriction on some factor inputs will further encourage a firm to innovate more production methods. Environmental policy has some positive indirect effects on a countrys economy. Due to new environmental policy, a firm should change its production process by innovating new production technologies. This will further help a firm to produce more output with limited resources and earn more profits. Furthermore, this increasing amount of total production will help a country to improve its real GDP. However, different environmental policies have different impacts on a countrys production process (Panayotou, 2016). Hence, it is very important for poli cy makers to analyse all possible effects before implementing an environmental policy. Moreover, empirical analysis of previous data will be beneficial for those policy makers to understand an accurate outcome. Natural rate of unemployment indicates a combination of structural, surplus and frictional unemployment. This type of unemployment can be seen in both developed and developing countries. On the other hand, a recession period indicates a condition when an entire economy is facing a decline in activity. Under this recession period, a countrys GDP decreases. Moreover, all business organisations are facing a decline in their sales and revenues. The level of investment and consumer demand becomes also very low during this period. Due to this low level of demand, firms reduce their production (Watson Deller, 2017). Moreover, those firms cut off their labour power to maintain a normal level of profit under recession period. Hence, job opportunity of various labours also declines. As a result, many people lose their jobs. Moreover, those unemployed workers face difficulties to find out new jobs (Marques, Lima Troster, 2017). Hence, from some practical incidence it can be seen that the rate of natural unemployment of any country has sharply increased after a recession period. Moreover, higher rate structural unemployment can be seen within and after this recession period. During a recession period, various economic factors of a country have declined. Those economic factors are real gross domestic product (GDP), employment level, real income and overall transaction levels of this country. There are various macro economic factors which help a country to face recession period. However, the chief reason of a recession period is inflation. The general price level of a country will be increased during this inflationary situation (Campbell, 2017). Moreover, increasing level of unemployment and decreasing rate of GDP will lead a country into a recession period. However, recession on the other side helps a country to reduce its inflationary situation. During a recession period, aggregate demand of a country declines. Moreover, due to high level of unemployment level and huge competition among those unemployed labours, wage rate becomes low (Ferrara, Marcellino Mogliani, 2015). Price level also has declined due to low level of demand. As a result, overall inflation rate of this country declines. In the above figure, real GDP of a country falls from Y1 to Y2 due to low level of demand. However, long-run supply curve remains constant. As a result, price level declines from P1 to P2. It will further reduce the level inflation of a country. To maintain economic stabilisation, the role of a government is very important. Citizens of a democratic country choose its government to live in an economically, politically and socially stable environment. An efficient government can control its inflation or recession period. However, due to some external effects, recession period occurs in both developed and developing countries (Kriesi Pappas, 2015). Due to this recession period, people lose their jobs. Other business organisations also face various difficulties due to low level of demand and investment. As the present government cannot control this economic disturbance, the poll rate of this government will be decreased. People will lose their faith on the present government. However, if the government can successfully handle this recession period by generating employment level and increasing demand, then this situation can be handled (Bartels, 2014). In this situation, the poll rate may not fall to a large extent. Hence, this poll rate varies from country to country and for different political parties. The typical consumer's food basket in the base year 2017 is as follows: Total price of 30 chickens is $ (30*3) = $90 Total price of 10 hams is $ (10*6) = $60 Total price of 10 steaks is $(10*8) = $80 The cost of consumers food basket in 2017 is $ (90+60+80) = $230 As chicken feed shortage occurs, the price of chickens becomes $5.00 each in the year 2018. Hence, total price of chicken will be now $(30*5) = $150 Hams price becomes $7.00 each. Therefore, total price of hams in 2018 is $(10*7) = $70. The price of steaks is unchanged. Hence its total price is $80. The cost of consumers food basket in 2018 is $ (150+70+80) = $ 300 Hence, the cost-of-eating index has increased by = ($300-$230)/$230 = 70/230 = 0.30 In percentage terms, the change value of cost-of-eating index will be 0.30*100 = 30%. In 2018, the price of two chickens is $ (2*5) = $10. The price of one ham in this year is $ 7. This mean the cost f two chickens are greater than one ham. Hence, people will consume more hams than chicken. Instead of consuming 30 chickens worth $ 150, people will consume 15 hams. Hence, total amount of hams consumption will be (10+15) = 25. Hence, people will actually buy only hams and steaks (Zhang, 2017). Thus, the real consumer's food basket in 2018 will be $ (25*7+80) = $ 175+80 = $ 255. Thus, true change of a consumers cost-of-eating index will be ($255 - $230)/ $230 = 0.108 or 10.8%. This true index value is lower than official index value, that is, 30%. Hence, the overestimated cost of eating indicates substitution bias Aggregate demand represents the amount of goods and services that an economy will purchase at each possible price level. On the other hand, aggregate supply indicates the aggregate amount of goods and services that the economy will produce and supply at each price level. By equating both aggregate demand and supply curve, an equilibrium level of price and gross domestic product will be obtained (Henderson, 2014). Here, macroeconomic equilibrium condition of Australia will be discussed. In the above figure, an aggregate demand curve (AD) and aggregate supply curve (AS) are drawn. Both curves intersect with each other and generate an equilibrium price level (P) and an equilibrium amount of national income (Y). Under short-run macroeconomic conditions, the equilibrium condition of Australia has occurred by equating both AD and AS curves of this country. However, it is not economically necessary that this equilibrium level will take place under full employment level. Hence, there is a huge opportunity for this country expands its productivity by using excess labour force (Keynes, 2016). In this context, expansionary monetary policy will help Australia to increase employment level. By this monetary policy, the government of Australia will increase its money supply within the economy. As a result, there will be huge amount of money for investing in a production process. Firms will increase its productivity level by investing more money. This will further increase the real GDP of Australia. By an increasing amount of real GDP, a country can increase its employment level. In the above figure the effect expansionary fiscal policy of Australia is drawn. Here, initial equilibrium amount of GDP and price level was Y1 and P1. However, after this policy, the new aggregate demand curve becomes AD2. In this new equilibrium situation, GDP and price level become GDP2 and P2, respectively. Due to favourable set of weather conditions, agricultural output is increased. As a result, total supply curve of Australia will be shifted to the right. In the above diagram, initial supply curve was AS. However, after increasing agricultural productivity, the new supply curve becomes AS. The initial demand curve AD remains same. The initial level of GDP and price level were Y1 and P1, respectively. However, after shifting the supply curve to the right, the equilibrium level of GDP become Y2 and price level becomes P2. From the aggregate demand and supply curve of Australia, it can be stated that equilibrium price level of agricultural goods falls When the government of Australia pursues a policy to reduce it business taxes, an expansionary fiscal policy will be applied. By this fiscal policy, the government will help various business organisations to produce more outputs. Production costs will be low and producers will charge less amount of price for its outputs (Cashin, Lenney, Lu tz Peterman, 2017). On the other hand, due to this low price, total consumption demand in market will be increased. In the above figure, expansionary fiscal policy is shown. By this policy, the demand curve shifts upward and the new equilibrium level of GDP becomes Y2 and the new price level becomes P2. When Australian dollars its value relative to their trading partners, the country will import more goods by international trade. As the exchange rate becomes favourable for Australia, the country can now purchase more goods by same amount of price (Guzman, Ocampo Stiglitz, 2017). As a result, the aggregate supply curve of this country will shift to the right. In the above diagram, the supply curve of Australia shifts to the right as the country is importing more outputs. As a result, total level of GDP will be increased and total amount of price will be decreased. 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