Samia Islam Sujana

Id-1812199030

Mid assignment
1.a.If we combine aggregate demand and aggregate supply in the same diagram, we can make
prediction about the economics of Bangladesh. There are 3 situations in an economy surplus,
equilibrium, shortage.

i. Surplus- When the sellers cannot sell the products. If there is surplus, the sellers will
decrease the price level. Then the Qd will equal to the Qs.
ii. Equilibrium- It is the balance of Qd and Qs (Qd=Qs). the number of products the seller
wants to sell is equal to the amounts of products the buyers want to bought. So, we can
say that the demand and supply is matching the economy.
iii. Shortage- When there are less products in the market, we can say that the demand is very
high but the supply is low. People wants products but there is no supply. The sellers
increase the price when there is shortage.

b. Sticky wage theory tells us when the price level increases the sellers also tries to sell more.as
wage is fixed because of contract.

Real wage =nominal wage/CPI

If the price level CPI
Keeping the nominal wage constant. if labor is paid low real wage, they will hire more
workers. businesses hire based on real wage. Hire more workers and the production will
increases. Hence, the Qs increases (sellers want to produce and sell more).
2.a. Assuming the real GDP of country z is increasing and James concluded that now citizens
can enjoy more goods and services. His conclusion might be wrong. nominal GDP has to be
adjusted for inflation. As GDP does not give us any meaningful result. If price changes, GDP
also adjust those changes. We can convert nominal GDP into real GDP. After adjustment we got
the real GDP.GDP is not about only consumption. It is also about production like how much we
are producing. Here, James is thinking price decreased so the consumption might be increase. but
it does not matter if the price decreases or increases, we got our real GDP after adjustment. So,
there will not be any changes in the consumption.

b. Floyd’s conclusion might be wrong. Here, the GDP of country A is higher than country B. so,
the total income must be greater. For example, in Bangladesh at least 5-10% people’ s income is
million or billon money. But we cannot say the same things for the rest of the 90% people.
Roughly people’s income is about 20-30thousand. But the people who is earning million and
billions of moneys, when it is adding with the GDP, seems like everyone’s income has increased.
But not everyone’s income has increased. Those who are in the top 5%-10% people their income
is increasing.so because of this disparity, if the GDP is higher, does not mean that the total
populations income has increased. We can say that a particular segment of people’s income has
increased.

Floyd’s conclusion might be correct when there is less disparity in income.

3.

Circular flow model

Circular flow model is a very useful model. we can divide the economy of Bangladesh into parts
like, households, business farms, government. Government imposes laws and makes the
economy stable. Business farms produces goods and services like clothing, foods. These goods
and services come to us through the market.so, from the market households got the products.
When we buy something from the market it is called consumption. We got products and the
money goes towards the business farms through the dealer or seller. This is the business revenue.
The government is also doing the same thing. The government also bought goods and services
like furniture, foods. They got this from the market which is called government purchase. From
the market the business farms also bought products like furniture for their office. This cost is
called investment as it is used for producing something. When we bought products from foreign
economy it is import. For making goods business farms needs land labor which is provided by
households by leasing land, renting office. Market provides this through bd.jobs. this market is
resource market. Business farms has to pay the salary, rent. these incomes come back to the
households. So that is total expenditure= total income.

4.a. According to my opinion expenditure approach is better suited for calculating the GDP of
Bangladesh. the reasons- in a border of the economy there are expenditures like consumption,
government purchase, investment, import and export. We calculate all of these in the expenditure
approach. When we calculate our GDP, the goods and services are focused. These goods and
services are being produced inside the domestic economy. These total expenditures are
calculated in a certain period of time. But if we see income approach. The people escape income
tax though there is record of the income tax, income data.
b.We bought products from the foreign economy. This payment is called import. For example,
there is foreign products in daily shop, Swapna. The government may also buy Chinese
products like any machine. The business farms also bought products outside of the economy.
GDP is the final goods and services which is produced within a country’s border annually. So,
we have to exclude the foreign goods. We will subtract the import because in the household’s
consumption, government purchase, business farms the foreign goods are included.

c. We add the earnings of foreigners living in Bangladesh because there are many foreign people
who are working in Bangladesh. Hence, they are providing services to Bangladesh. But it is not
included in the national income. In the national income, only the citizens of Bangladesh income
is included. As the foreigners are working inside the border of Bangladesh that is why, we have
to add their earnings too. So, we have to consider this as it is not included in the national income.

d.We subtract earnings by Bangladeshis living in foreign countries because Bangladeshi citizens
may work in Malaysia, Australia, China. But his income is included in national income.so, the
services that he is producing is generated in that country. That dollar is remittance earning
which is included in the national income. As the services is being produced in China, Malaysia
so we need to subtract that. Because it is already in the national income.

5. Our economy has faced unexpected crisis. There is collapse in aggregate demand and supply.
If we see the business, there is falling in demand.so, broken supply chain will not have option.
They have to lay off workers. The lockdown has caused great damage like factory closure,
employment loss, reduction in national income, cancel of import orders, melancholy demand in
domestic products. These all has an adverse impact in our economy. Services sectors like
restaurants, trade, transports have also worsened. GDP growth has also slowed down. Domestic
and international demand has declined. There is less supply of the goods and services.
By using the AD and AS model we can see, aggregate demand will be decreased so the price
level will increase. And there will also be declination in aggregate supply

7.a.The unemployment rate in Bangladesh in 2020 was reported to be 5.30%. this means 5.30%
labor forces are unemployed and the economy is not doing well. Every economy wants that the
unemployment rate to be low. Unemployment rate is the % of how much labor forces are jobless.
Naturally 4% labor forces are unemployed. From the 5.30% rate we can say that the economy is
not in a good shape. So, there are scarce of jobs.

b.It is not possible to have zero unemployment in an economy because of imperfection. In every
economy 4% labor forces are unemployed. In a country there are some people who doesn’t work
or not willing to work like house wife, retired persons. there are some reasons like –

Structural unemployment –when changing the structure eliminated some jobs but it creates
some jobs too. As he does not have the skills or training to shift to another job. He remains
unemployed.

Frictional unemployment- when someone lose a job, whey looks forward to get another job.
But it takes some time to get the information where is the vacancy. In that meanwhile, he is
unemployed.

8.a. In 2019 the CPI of Bangladesh was 258.65 and in 2020 the CPI of Bangladesh was 273.26
CPI provides us the information about the average goods and services which is bought by the
households are increasing or not. The information we can obtain from the given CPI values is the
inflation rate.

Inflation rate = (CPI later year-CPI earlier year)/ (CPI earlier year) X 100

= (273.26-258.65/258.65) X 100 = 5.64%

So, the inflation rate in 2020 was 5.64%.it means that the price of goods and service which is
bought by a typical household in Bangladesh has increased by 5.64% between 2019 to 2020.

b.Business organization can use CPI values to adjust the wage of their employees.in economics,
the nominal variables does not gives us the real picture. The business organization will increase
their wage after calculating the real wage. From the above we got 5.64%. CPI values tells us the
average price of the goods and services which is bought by the household to see if they are
increasing or not. We have to provide them more than 5.64% so that the real wage will increase.
But if it is less than 5.64% then the real wage will decrease.