Part 1: Data presentation

GDP growth of South Korea during 2017 - 2021

5

3
Annual (%)

-1

-2
2017 2018 2019 2020 2021
Year

Inflation, GDP deflator

2.5

1.5

1
Annual (%)

0.5

-0.5

-1
2017 2018 2019 2020 2021
Year

Figure 2: South Korea inflation rate during 2017 – 2021 (%) - Source: World Bank Data (2022)

Unemployment rate:
 Unemployment rate (%)
4

3.9

Annual (%) 3.8

3.7

3.6

3.5

3.4

3.3
2017 2018 2019 2020 2021
Year

The export growth of top 8 Asian exporters in export after COVID-19 (2020)
35%

30%

25%
Percentage (%)

20%

15%

10%

5%

0%
South Korea China Japan Hong Kong Singapore Thailand Philippines India
SAR, China
Top Asian exporters during 2017 - 2021

Figure 4:
 Average household debt in South Korea (2017 - Q1/2022)
120

100

80
million (KRW)

60

40

20

0
2017 2018 2019 2020 2021 2022
Year

Figure 5:

Chart Title
5

-1

-2
2017 2018 2019 2020 2021

GDP growth Inflation Unemployment rate

 South Korea GDP growth, inflation, unemployment rate from
2017-2021
5
4
3
percent %

2
1
0
-1
-2
2017 2018 2019 2020 2021
Year
GDP growth Inflation
Unemployment rate

Net exports and inflation growth rate of South Korea

during 2017-2021
90.00 2.50
80.00 2.00
70.00
1.50
60.00
billion KRW

annual %
50.00 1.00
40.00 0.50
30.00
0.00
20.00
10.00 -0.50
- -1.00
2017 2018 2019 2020 2021
Year

Net exports (bil KRW) Inflation, GDP deflator (annual %)

Figure:
 GDP value and central government debt of South Korea during
2017-2021
1,800.0 60.00
1,600.0
50.00
1,400.0
1,200.0 40.00
trillion KRW

% of GDP
1,000.0
30.00
800.0
600.0 20.00
400.0
10.00
200.0
- 0.00
2017 2018 2019 2020 2021
Year

GDP (current US$) Central government debt, total (% of GDP)

Figure :
QUESTION 2:
KL

QUESTION 1:
Data Analysis: For the most recent, 5 years present the GDP, inflation and unemployment
and two other macroeconomic data that you see fit to present the state of the country.
Present your data very briefly.
What we should do in p1:
- Present data visualization, demonstrate and analyze the link of these factors,
Present GDP, Inflation and Unemployment rate graph first
Comment the overall economic trend and evaluate & explain the relationship between those 3 factors
Two factors I choose:
Net export
Why CHOOSING ?
According to SO (2020), net exports indicates the financial health of a country through the money flow in
international trade which shows direct effect on the total GDP calculation and the consumer demand of
that country. This factor is thoroughly considered since South Korea is among top 8 Asian exporters since
2017 (Reuters 2020).
 Net exports and inflation growth rate of South Korea
during 2017-2021
90.00 2.50
77.09
2.22 76.54 2.32
80.00 2.00
70.00 66.20
60.21 1.50
60.00 1.31
billion KRW

46.15

annual %
50.00 1.00
40.00 0.48 0.50
30.00
0.00
20.00
10.00 -0.50
-0.84
- -1.00
2017 2018 2019 2020 2021
Year

Net exports (bil KRW) Inflation, GDP deflator (annual %)

South Korea's net exports have fluctuated during the last five years. The most notable decrease point is
seen in 2019, prior to the occurrence of COVID-19. Yet, following the epidemic, South Korea exhibits an
extraordinary comeback in net exports, recording a total of $100 million in export value, rescuing the
nation from a financial crisis.
Net exports, which have been among the top eight Asian exporters since 2017, are an intriguing indicator
of South Korea's financial status in international commerce. South Korea's most substantial reduction in
the last five years occurred in 2023, with a sharp drop of 46.15B as a result of the interest rate rise policy
to combat excessive inflation. Nonetheless, the country showed signs of improvement, reaching.

National debt
 National debt value and Unemployment rate of South
Korea from 2017-2021
3.93
900 4.0
756.96 790.84
800 3.82 3.9
700 649.06
606.51

annual % growth
609.87 3.8
600 3.75
billion KRW
500 3.7
3.65
400 3.6
300 3.53
3.5
200
100 3.4
- 3.3
2017 2018 2019 2020
Year

National debt Unemployment rate

Coupled with South Korea's recent rapid economic expansion, government deficit is a growing concern
that represents both a risk and an opportunity for enterprises looking to enter the South Korean market. In
response to inflationary pressures, the government responded by increasing government expenditure in
medium-term planning, resulting in a dynamic increase in national debt of 601.5B-7000B, rising to
788.8B in 2020 owing to the pandemic.

Government consumption, national debt and inflation rate of

South Korea from 2017-2021
1,000.00 2.5
2.2 763.48 2.3
900.00 2.0
800.00 647.78 660.07 875.89
700.00 606.51 1.5
1.3
billion US$

600.00 1.0
500.00
0.5
%
400.00 327.53 0.5
250.39 282.03 295.80
300.00 276.87 0.0
200.00
100.00 -0.5
-0.8
- -1.0
2017 2018 2019 2020 2021
Year

Government consumption National debt Inflation

 South Korea GDP growth, inflation, unemployment rate from
2017-2021
5
3.82 3.75 3.93 4.02
4 3.65
2.91 3.53
3 3.16 2.24
percent %

2 1.31
2.22 2.32
1 0.48
0
-0.84
-1
-0.85
-2
2017 2018 2019 2020 2021
Year
GDP growth Inflation
Unemployment rate

[Generally, South Korea is optimistic about the rate of economic expansion. Annual GDP fell by 2-3%
over a 5-year period, but rebounded strongly following COVID-19, rising by 4.87% in 2021. The
unemployment rate has been consistently low at around 4%. The inflation rate is considerably high;
following a deflation of -0.84 during 2019, the rate increased by 2.32% due to the pandemic effect. To
counteract the immediate damage, the national debt dynamic, which was already considerable during
2017-2019, grew by 756.9B-790.8B in 2020-2021. The outcome was fairly encouraging, with a net export
value growth of 60.21B-66.20B in 2021.]
Generally, the rate of economic growth in South Korea appears to be good. Annual GDP growth fell by 2-
3% during a 5-year period at initially, but thanks to good measures, it recovered by 4.87% in 2021. The
unemployment rate remained persistently low, hovering around 4%. Yet, despite a -0.84% deflation in
2019, the annual inflation is fairly high at about 0.48-2.32%. Public debt, on the opposite hand, has
already reached an all-time high of $756.9B-790.8B in 2020-2021 as a result of counterproductive fiscal
policy. Nonetheless, the outcome was fairly positive, as demonstrated by a consistent growth in GDP and
a massive increase in nett export.

Yet, despite a -0.84% deflation in 2019, the inflation rate is fairly high at about 0.48-2.32%. National
debt, on the other hand, has already reached an all-time high of $756.9B-790.8B in 2020-2021 as a result
of counterproductive fiscal policy.
Question 2:
The AD-AS model may be used to analyse how the country overcome the COVID-19 epidemic from
a macroeconomic standpoint. Utilize your results from point 1 to support your argument.
 Figure 4: The impact of COVID-19 on South Korea AD/AS model

Figure : The impact of COVID-19 on South Korea AD/AS diagram

The
 Figure : The effect of policy changes on AD/AS diagram

As restrictions easing and the effect of the stimulus starts to take place, Bank-of-England raised
GDP projection for 2021 is now 7.25%, up above 5% in February (Partington 2021). My conclusion is
that the UK government have effectively deployed fiscal instruments to stimulate the economy, resulting
in rapid GDP growth and a decrease in the unemployment rate. Considering Britain's experience with the
crisis of 2008, I expect the UK economy will restart stable growth after 2021, as it did in 2010. (see figure
1.1). Yet, the government must strictly watch its debt; at the current low interest rate, it may not be a
concern, but heavy debt will hinder the economy in the long term.
The epidemic wreaked havoc on the UK economy, bringing a negative jolt to both the demand and supply
curves. In particular, the cumulative effect of Britain and Covid lockdowns dragged on manufacturing
output; 58% of UK manufacturers report lengthier delivery times (Smith and smith 2021), moving the
Short - run aggregate supply curve to the left. A negative shock was also recorded on the demand side,
with GDP falling by over 10%. As a result, the economy entered a state of stagnation, with the CPI rising
by only 0.8% in 2020. As explained in chapter 2, the government's efforts to boost GDP through fiscal
policy push the AD curve to the right. Additionally, the Bank of England expanded the money supply
through monetary policy, spending 350 billion GBP on monetary stimulus in 2020 and keeping interest
rates at a historic low of 0.1%. (Salmon 2020). Fiscal and monetary policy both jump-start the faltering
economy and move the AD curve to the right to a new equilibrium point at C with more demand and
higher prices. Also, when the Bank expands the money supply, money devalues, increasing inflation,
which is anticipated to reach 2.5% in 2021. Although the UK economy will grow at a remarkable 7.25%
in 2021, the trade-off will be greater inflation and a reduction in residents' life-savings.

Figure : The effect of policy changes on AD/AS diagram

https://keia.org/the-peninsula/2021-in-review-south-koreas-economy-and-covid-19/
The epidemic had a detrimental influence on the South Korean economy, both in terms of supply and
demand. The supply chains were affected as a result of the lockdowns, and export volume decreased as a
result of delivery delays caused by supply constraints (Beom 2021). Manufacturing production compelled
enterprises to slash pay or reduce employment, resulting in an increase in jobless in 2020, which directly
influences aggregate supply and pushes the SRAS line to the left. The drop in yearly GDP in 2020
resulted in a
Furthermore, the impact of decreased income and lockdowns has had a cyclical effect on households, as
they are deterred from spending more, resulting in a decrease in household consumption.
The epidemic had a detrimental impact on both demand and supply in South Korea. The supply chains
were interrupted as a result of the lockdowns; in international trade, export volume was canceled due to
late delivery caused by supply constraints (Beom 2021). Reduced employment and pay decreases have a
severe impact on South Korea's supply side, shifting the SRAS to the left (Figure 3). On the demand side,
a shortage of supply raises consumer prices, while income loss and social-distancing discourage people
from purchasing, lowering aggregate demand. As a result, the AD line slips to the left.

Government consumption, national debt and inflation rate of South Korea

from 2017-2021
1,000.00 2.5
900.00
2.0
800.00
700.00 1.5
600.00
billion US$

percent %
1.0
500.00
400.00 0.5
300.00 0.0
200.00
-0.5
100.00
- -1.0
2017 2018 2019 2020 2021

South Korea implemented several beneficial economic strategies in response to COVID-19. Prior to this,
the finance ministry implemented an aggressive fiscal strategy by increasing the time payment by 8.5%
for consumer support, banking sector reinforcement, and exporting with $763.48B.
Furthermore, the government is constantly lowering interest rates.
https://www.ncbi.nlm.nih.gov/pmc/articles/PMC8674113/
https://koreascience.kr/article/JAKO202018248704522.pdf
https://www.reuters.com/article/southkorea-economy-budget-idUSKBN25S3CY
https://www.oecd-ilibrary.org/sites/88dfa4e5-en/index.html?itemId=/content/component/88dfa4e5-en
https://keia.org/the-peninsula/2021-in-review-south-koreas-economy-and-covid-19/
https://keia.org/the-peninsula/koreas-monetary-policy-during-the-covid-19-pandemic/

RECOMMENDATIONS:
- Raise interest rates
 - Liberalizing trade -> reduce tariffs -> reduce prices -> reduce inflation -> can satisfy high
demand but low national supply by import cheap goods from partners. -> cost less & not affect
the income of households & stimulate manufacturing competitiveness.

Part 2: AD/AS model of South Korea in the COVID-19 period

Figure 3 & 4: AD/AS model of South Korea during COVID-19 period and after policy implications

The pandemic caused a negative shock on South Korea economy both supply and demand.

Government consumption, national debt and inflation rate of South Korea

from 2017-2021
1,000.00 2.5
900.00
2.0
800.00
700.00 1.5
600.00
billion US$

percent %

1.0
500.00
400.00 0.5
300.00 0.0
200.00
-0.5
100.00
- -1.0
2017 2018 2019 2020 2021
 South Korea GDP growth, inflation, unemployment rate from
2017-2021
5
3.82 3.75 3.93 4.02
4 3.65
2.91 3.53
3 3.16 2.24
percent %

2 1.31
2.22 2.32
1 0.48
0
-0.84
-1
-0.85
-2
2017 2018 2019 2020 2021
Year
GDP growth Inflation
Unemployment rate

Since the outbreak, Korea has seen a severe surprise across both supply and demand. Lockdowns, in
particular, stopped economic activity, enterprises malfunctioned in manufacturing, and manpower was
unavailable, forcing firms to reduce production. Because the economy's production is lower than the
actual output predicted, the SRAS swings to the left. The supply shock during this recession phase
resulted in a significant drop in real GDP growth rate of -0.85% (Figure 1), the worst in the 5-year period,
and a continual rise in inflation rate over the next two years. Also, the price hike resulted in a decrease
in demand for items. With 3.93% increase in unemployment (Figure 1), pay reductions due to inefficient
economic operations, and hyperinflation, consumer confidence declined as they had less purchasing
power, generating a lack in demand. As a result, the reduced production volume and premium price
level seen imply an inefficient lengthy economy in which rising prices result in higher living expenses,
prolonged inflation, and income disparity as a downturn in the South Korean economy.

In response to the epidemic, the government used both monetary and fiscal policies to return the AD/AS
ratio to its natural anticipated level. The financial ministry implemented an expansive spending plan by
increasing the supplementary budget by 8.5%, resulting in a $327.53B rise in state spending in 2021, up
from $295.8B in part 1. This strategy boosted consumer spending during the current slump,
demonstrating support for the South Korean economy through a multiplier effect, resulting in a 4.87%
increase in GDP growth by the end of 2021. Public finances assist the government in resolving the issue
of high unemployment, allowing development in export and financial markets, and preparing for the
next recovery period (OECD 2020). As a result, if participation rate and resources are favourable, the
SRAS will rise. Notwithstanding rising inflation, the government opted to implement a monetary strategy
of rate cuts in response to poor demand (Reuters 2021). In 2021, the interest rate will be reduced to
0.6% in order to supply liquidity, support financial markets, and allow customers to draw more from
banks. Both the monetary and fiscal interventions effectively counteract the economic downturn and
move the AD to the right reaching a new optimum C with stronger demand and prices. Yet, a drop in tax
receipts and huge fiscal stimulus to the economy will result in higher government debt. Clearly, with
such low interest rates, the national debt is considerably excessive, having increased by 48.7% of GDP
following public policy in 2021. As a result, despite near-5% short-term economic growth, the
government should rigorously limit the debt ratio and forecast substantial inflation in the future.

QUESTION 2:

Since the outbreak, South Korea has seen a detrimental disruption in both supply and demand.
Lockdowns, in particular, stopped economic activity, enterprises malfunctioned in manufacturing, and
manpower is scarce, leading firms to limit production. The economy's production is less than the natural
productivity predicted, which causes the SRAS to move to the left. The supply glut in this recession led
GDP growth to decrease by -0.85% (Figure 1), the smallest in the 5-year period, and inflation to rise
steadily over the next two years.

In response to the pandemic, the government worked to return the AD/AS to the naturally anticipated
equilibrium through fiscal and monetary policies. By raising the supplementary budget by 8.5%, an
expansionary fiscal policy resulted in a significant rise in government consumption in 2021, from $295.8
billion to $327.53 billion, as was shown in Part 1. This increased consumer spending during the current
recession, supporting South Korea's economy through a multiplier effect that increase GDP by 4.87% by
the end of 2021. Public finances enable investment in export and the financial sector, aid in preparation
for the second phase of recovery, and assist the government in addressing the high unemployment issue
(OECD 2020).

However, the decline in government revenue and massive fiscal support to the economy will push up
government debt. Evidently, at such low-interest rate, the national debt is significantly high, accounting
for 48.7% of GDP after policy implementation in 2021. Consequently, despite the In response to the
epidemic, the government used fiscal and monetary measures to restore the AD/AS to its naturally
expected equilibrium. An expansionary fiscal strategy led in a considerable increase in government
expenditure in 2021 as seen in Part 1. During the current recession, this raised consumer spending,
which aided South Korea's economic through a fiscal multiplier that improved GDP by 4.87% by the end
of 2021. Public finances enable export and financial sector investment, aid in the planning for the first
phase of recovery, and support the government in resolving the high unemployment problem (OECD
2020). growing by about 5% in the short term, the government should rigorously manage the debt ratio
and rising inflation in the future.

QUESTION 3:
At the moment, South Korea's recovery from the epidemic is sluggish but successful. With extra fiscal
support, GDP growth will climb by 2.8% in 2022. By early 2022, GDP per capita had overtaken the
OECD average by about 1-2 index points (Figure 5). The Russian invasion of Ukraine has an impact on
global commerce, making South Korean supply chains reliant on two nations for raw resources for
semiconductor manufacture, Korea's main export. Because oil and other commodity prices have risen as a
result of the pandemic's recovery and the conflict, inflationary pressures have been created. Net exports
are steadily rising, indicating a robust export-led comeback in 2022. Nonetheless, the value of exports and
imports is lower than previous year due to Ukraine and Russia.
To address the most pressing issue of higher inflation, I propose two policies:
Inflation is caused by an excess of demand and an insufficient supply, resulting in total price rises (Forbes
2022). To lower economic growth, we can only raise taxes or cut expenditure, which, in my opinion, is
ineffective since it would harm individuals and diminish our nation's investment potential. As a result, the
government can boost supply using the two techniques listed below:
Increase the number of skilled employees among the younger generation:
More skilled employees from the youth labour force may be beneficial to the South Korean economy.
South Korea, as a diverse industrial base country, has a competitive advantage in making industrial
goods, particularly high-end electronics. As a competitive advantage amongst countries, these sectors
required trained and semi-skilled labour. According to the OECD (2022), South Korea is experiencing a
mismatch in skill availability and demand in the labour market, which is caused by an under-qualified or
undeveloped labor that lacks in-demand skills. When compared to China, which is also a major exporter
of electronic goods, they have a considerably more skilled and advanced-technical working population
(The Korean Times 2022). An excellent strategy is to use the resource of decent education investment to
reduce unemployment by hiring young people. Presently, the percentage of young labor in Korea is lower
than in other industrialized nations (Figure 6) because employers do not value their abilities as highly as
experienced workers. Considering the diversity and skills of those new generations and providing them
with higher education, this supply will be suited to meet South Korea's industrial needs, and will be a
driving element in increasing Korean supply.
- Liberalizing trade -> reduce tariffs -> reduce prices -> reduce inflation -> can satisfy high
demand but low national supply by import cheap goods from partners. -> cost less & not affect
the income of households & stimulate manufacturing competitiveness.
- Liberalizing trade with other countries:
Expand liberalizing trade and partnership:
Foreign commerce is critical to the country's economic growth since it is export-oriented. South Korea
has a diverse spectrum of partners, ranging from industrialised to developing nations, with many of them
having signed free trade agreements. As a result, changing trade policy can have a direct impact on
inflation. Tariff reduction is a typical policy in international commerce. With reduced or zero-tariff
applied, the cost of products imported into Korea is lower, attracting more providers and, as a result,
increasing supply and lowering prices to combat inflation. Considering South Korea's export-dependent
culture, if they rely too much on exports alone, the country would face pressure to meet strong domestic
demand (ADBI 2007). As a result, trade liberalisation is required to improve national and consumer
welfare, promote domestic production, and boost competitiveness in multilateral commerce.
Comparison:
Increasing skilled employees from the youth labour force is more helpful to South Korea in the long run
than growing trade liberalisation. Through utilising young labour, the government may reduce youth
unemployment in South Korea, increase productivity and supply capacity in the industrial sector, and
produce more GDP value. Furthermore, there is a source of fantastic education system along with
substantial R&D and employment investment that is handy and worthwhile for economic growth
durability. In expenditure terms, the costs of educating and hiring teenage labour are more than the
microeconomic cost of lowering tariffs, which has been a potential source of money for the South Korean
government in recent years. South Korea, as one of Asia's top exporters, should focus more on exports
due to the benefits of massive FDI in labour force and technological development. To summarise, teenage
labour is an underutilised resource in South Korea that should be explored in order to boost supply edge,
which is the most suggested way to dealing with high price in long-term growth.

According to IMF (2022), Ki

According to OECD (2020), Korea has
https://www.koreatimes.co.kr/www/tech/2022/06/419_330649.html
https://www.forbes.com/sites/qai/2022/09/14/how-to-fix-inflation-beyond-just-raising-interest-rates/?
sh=59e6a7de3acf
https://www.adb.org/sites/default/files/publication/159360/adbi-korea-workforce-dev-report.pdf

Figure 5:
Figure 6: