Macroeconomics 11th Edition by Michael Parkin

Exercise 18

Explaining Macroeconomic Trends and Fluctuations
Use the following news clip to work Problem.
Spending by Women Jumps
The magazine Women of China reported that Chinese women in big cities spent 63% of their income on consumer goods last year, up from a meager 26% in 2007. Clothing accounted for the biggest chunk of that spending, at nearly 30%, followed by digital products such as cell phones and cameras (11%) and travel (10%). Chinese consumption as a whole grew faster than the overall economy in the first half of the year and is expected to reach 42% of GDP by 2020, up from the current 36%.
If the economy had been operating at a full-employment equilibrium,
a. Describe the macroeconomic equilibrium after the rise in consumer spending.
b. Explain and draw a graph to illustrate how the economy can adjust in the long run to restore a full-employment equilibrium.