Question 1A (5 marks)
The table below reports some labour market figures for a hypothetical country, Blefuscu in 2005. Assume that there are only two types of employment: full time and part time. Everyone who is not employed is unemployed. Calculate the Labour force participation and ii) unemployment rate. Show all your calculations.

Population 850,000
Working age population 400,000
Number of people Not in the labour force 50,500
Part-time employment as a percentage of total employment 15%
Number of full-time employees 201,451
Rate of underemployment 2%

Question 1B
The government of Blefuscu announces that the unemployment rate fell from 2005 to 2006. The government says this is positive news as it shows more jobs are being created and less people are unemployed. The labour unions, on the other hand, disagreed with this assessment and stated that they could find no evidence that additional jobs have been created between 2005 and 2006.

Your task is to explain how the unemployment rate can fall even if there are no new jobs being created. First, using the numbers you have been given in 1A as the 2005 figures, fill in the table below by developing a set of numbers that show how the unemployment rate can fall even if there are no new jobs being created. Assume no change between 2005 and 2006 in the population, percentage of part time workers and working age population. Second, discuss in detail how the numbers show the unemployment rate can fall even if there are no new jobs being created. List two possible reasons why this may occur.

Year 2005 2006
Population 850,000 850,000
Working age population 400,000 400,000
Number of people Not in the labour force 50,500
______

Part-time employment as a percentage of total employment 15% ___%
Number of full-time employees 201,451
_____

Rate of underemployment 2% ___%

Question 2

Economists are deeply puzzled by our desire to have children. First, kids are really expensive – the biggest financial decision most couples will make. Forget the cost of buying the family home; the kids you choose to populate it with will end up costing just as much, or more, over a lifetime. A survey released last week by AMP and the National Centre for Social and Economic Modelling found the typical Australian family spent $812,000 raising two kids. This is an increase of nearly 50 per cent in just six years. …Economists like to assume we are rational individuals who make decisions based on anticipated costs and benefits.

You are the senior Economic advisor to the Prime Minister who is currently considering how to reduce the cost of having children and promote more economic growth. Some of her party want to continue John Howard’s “baby bonus” scheme that provides a lump sum of cash to parents upon the birth of a child. Others argue that the government should instead aim to focus on lowering the costs of educating children by making tertiary education free.

A) Discuss how each of these options will affect wages and labour productivity, potential GDP and real GDP. Will they lead to growth in real GDP and rises in real GDP per capita? use the potential GDP and labour market diagrams in your answer. (6 marks)

B) Imagine that whatever strategy will be chosen, it will be kept for the next three decades. In terms of achieving growth in the long run, discuss which strategy would lead to higher growth rates and explain why (2 marks)

C) How would each strategy affect the standard of living? (2 marks)

Question 3

Hint: For this question read the textbook about the great recession (a.k.a the GFC) on page 135 and page 308-309 of the textbook. Page 304 to 305 of the textbook provides some information for Australia Each student is assigned a country. You can find your country in the “Markcentre”.

II. This data is sourced from the IMF’s World Economic outlook. Find data for the country you have been assigned to– see mark centre for more information.

III. Select “national accounts” and choose “GDP, constant prices, % change”, This is real GDP. Select your country from the list and also select Australia. Choose the years 2004 to 2016 using the ruler at the bottom of the page. Use “print screen” to copy and paste them into your assignment document

IV. Repeat the same exercise to create a second graph for the unemployment rate – see “People” and “Unemployment rate %”

V. Repeat the same exercise to create a third graph for inflation

Question 3A (6 marks)
Use the information from the graphs above and your own research to draw a AD-AS diagram for the country you have been assigned to and Australia at three points in time: 2005, 2007 and 2012.

The AD-AS should clearly show the price level, Real GDP and unemployment rate. Clearly identify either a Recessionary gap, inflationary or the long run equilibrium at the each time point.

Briefly explain what evidence you have used to justify your graph. You may use any information from credible sources (wikipedia and similar websites are NOT credible). We highly recommend using the IMF’s World Economic outlook reports from 2004 to 2012 found here:
https://www.imf.org/external/ns/cs.aspx?id=29

Question 3B (2 marks)
For the country you have been assigned to (not Australia), do research and explain what happened in the economy between 2005-2007 and 2007-2012. Show how these changes took place by shifting the appropriate lines in a AD-AS diagram.

Question 3C (2 marks)
Based on both research and the above figures, briefly discuss whether the country

 
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