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.
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%.