Short Answer Questions
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Short Answer Questions:
- Compute various indicators of the state of the labour market using the following information. Please show all of your working. If you do not, you will receive zero marks for the question(s).
| Demographic Group | Number of Residents | |
| Full-time workers | 7,000 | |
| Part-time workers | 2,000 | |
| Unemployed and looking for work | 600 | |
| Unemployed and not looking for work due to
discouragement over job prospects |
500 | |
| Not working due to disability | 300 | |
| Not working due to retirement | 900 | |
| Under the age of 15 | 3,000 | |
| Total Population | 14,300 | |
- (1 mark) What is the size of the labour force in this economy?
- (1 mark) Calculate the Labour Force Participation Rate for this economy. Report as a percentage to two decimal places.
- (1 mark) Calculate the Unemployment Rate for this economy. Report as a percentage to two decimal places.
- (1 mark) Suppose that the natural rate of unemployment is considered to be 5%. What is the rate of cyclical unemployment? Report as a percentage to two decimal places.
- Analyse the effects of the following events using the loanable fund market diagram where we have (real) interest rate on the vertical axis and the quantity of loanable fund on the horizontal axis. Please ensure to explain what happens to saving, investment and (real) interest rate.
- Consumers decide to save more to prepare themselves for the future (at any given interest rate). Assume the government budget balance is zero. (3 marks).
Answer here (Tips: to create new lines, simply copy the existing curves and move to the new location)
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- A reduction of income tax rate by noting that the source of the supply of loanable funds coming from both private as well as public saving (3 marks)
Answer here (Tips: to create new lines, simply copy the existing curves and move to the new location)
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- Watch the 10 minute video at gapminder.org/videos/what-stops-population-growth
Summarize the video in minimum of 5 sentences (Not in the bullet points, please!). What were the most interesting or surprising facts you learned? (3 marks)
(Answer
- Over the next 100 years real GDP per capita in Neverland is expected to grow at an average annual rate of 2.0%. Gotham (yes, where Batman lives!) is expected to growth at an average annual rate of 1.5%. If both have a real GDP per capita today of $20,000, compare their real GDP per-capita in 100 years. Please show all of your working. If you do not, you will receive zero marks for the question(s). (2 marks)
(Answer)
- The level of government debt is a growing concern for the current Australian Treasurer who has the responsibility of managing the government budget. Summarise the key arguments on the debate around Australian government debt and deficit for the Turnbull government.
Your summary must address the following; what is the major concern of running government deficits, what is the economic reasoning to have a balanced budget and when might a budget deficit/surplus be ok? Conclude by briefly discussing what policies you would suggest to Scott Morrison implements in order to balance the budget and why. The summary should be at least half a page in length (again, please do not write in the form of the bullet points). No need to list the reference, but please do not copy and paste from whatever you found on the web. We can easily detect this in our system! (5 marks)
(Answer)
SAMPLE ANSWER
Introduction
The labour market is one of the pillars of global economy. This means that all aspects surrounding the labour market should be managed properly. Labour force, participation rate, unemployment rate and rate of cyclical employment are some of the aspects surrounding labour markets (Thompson 2013, p.34). From demographic information, these aspects can be calculated easily.
The table below contains labour market information. The information has been used in various calculations.
| Demographic Group | Number of Residents | |
| Full-time workers | 7,000 | |
| Part-time workers | 2,000 | |
| Unemployed and looking for work | 600 | |
| Unemployed and not looking for work due to
discouragement over job prospects |
500 | |
| Not working due to disability | 300 | |
| Not working due to retirement | 900 | |
| Under the age of 15 | 3,000 | |
| Total Population | 14,300 | |
- The labour force in this economy
Labour force refers to the part of a population that is able to work; employed or seriously looking for work. From the information provided in the table above, the economic labour force is as follows.
Economic labour force = full-time workers + par-time workers + unemployed and looking for work
=7000+2000+600= 9600
- Labour force participation rate for this economy
Adult Population = Total population – Under the age of 15
This is equal to 14,300 – 3,000 = 11,300
Labour force participation rate = x 100 = x 100 = 84.96%
- The Unemployment rate for this economy
Unemployment rate is given by
x 100 = 6.25%
- The rate of cyclical unemployment
- Natural rate of unemployment of 5%.
Rate of cyclical unemployment is given by:
Actual Unemployment rate – Natural rate of unemployment
This is equal to 6.25% – 5% = 1.25%
- Analysis of events using the loanable fund market diagram
- Consumers decide to save more to prepare themselves for the future (at any given interest rate). Assume the government budget balance is zero.
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Demand2
Supply2
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E2
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Size of loanable funds shifts right and the real interest(r) rates goes down. A reduction in interest rates catalyses the economy as many investors are attracted to invest which in the long run pushes the rates up
A reduction in the rate of income tax by noting that the source of the supply of loanable funds coming from both private as well as public saving
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Demand2
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E2
r2
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Q2
Reduction in income tax expands the income of the public and private sector. This leads to reduced demand for loanable funds hence the curve shifts left while the interest rate goes down
- A summary of a 10 minute video available at
www.gapminder.org/videos/what-stops-population-growth
The summary is highlighting the most interesting facts therein.
Hans Rosling explains that poverty has been a catalyst of population growth in developing countries in his explanation using the bubbles in the box theory. In this theory, he projects that the industrialized population in 2050 will be 2 billion. He states that control of mortality rate and introduction of family planning methods are critical aspects in controlling population increase. He further states that governments and private sectors should invest dearly in industrialization to make families stay engaged in their operations and remain in the course of owning a car rather than a bicycle. He finally warns that the population poverty levels are likely to go up if growth oriented measures are not put up. This theory is important as it acts as a benchmark for governments in planning and focusing on economic tools to look at in satisfying their citizens.
- Assuming that a nation is reporting GDP of dollars a, and experiences a change of b per annum, the GDP achieved after c years is as follows.
$a× (1+ 0.0 b) c
It is assumed 0 ≤ b < 10
If real GDP per capita in Gotham grows at an average annual rate of 2.0%, real GDP per capita in 100 years will be:
[$20,000 × (1 + 0.02) 100] =$144,893
At an average annual rate of growth of 1.5%, real GDP per capita in Neverland in 100 years will be:
[$20,000 × (1 + 15/1,000)100]= $88,641
Although the two nations have equal GDP currently, Neverland’s growth rate is 61.2% of Gotham’s growth in living stands. This is calculated as below.
× 100% =61.2%
- Summary of the key arguments on the debate around Australian government debt and deficit for the Turnbull government.
A government’s deficit is a key phenomenon in many developing countries and few developed countries. Deficits are usually brought about by current or past governments spending more than their total revenue collections. A country’s inability to fund its development activities after settling its recurrent expenditure is the ideal explanation of budget deficit. This situation is a common definition of crisis in economy that leads to economic slump. Additionally, this ends up causing increased unemployment rates thus promoting criminal actions. This condition has created hot air which has made economists elucidate on the reasons why there should be unwavering concern about budget deficits. The key grounds touch on economic stress which causes death of industries. This leads to poor growth in a country as citizens cannot afford much in their life. It is worth noting that the poverty line is the lowest threshold in which one cannot afford daily meals. Unavailability of sustainable budget pushes the government to issue cheap bonds which is a major cause of making the private sector get deprived of capital. If the government in authority is unable to control this effect, it results into inter-generational transfer of debt thus crippling a country’s ambitions of development in the future. Balanced government budget is phenomenal as it creates a favourable atmosphere for sourcing funds in the international market. It also frees the government thus giving it an opportunity finance development projects thus catalysing economic growth. A balanced budget after continued period of investment results into budget surplus which is an important economic condition. This allows a country to engage in economic research and explorations on how to improve the economy and how to invest abroad in other developing countries which further expands its budget and promotes recreational activities. This being the case, Scott Morrison should put in place budgetary policies. The policies should focus on monetary measures to control the amount of money in circulation and fiscal policies by controlling the borrowing rates as well as encouraging the public to participate in maintaining the economic.
References
Thompson, S (2013), Global Labour markets, (Online) Retrieved from http://search.proquest.com/business/docview/194164649/A352F7CD585E4050PQ/15?accountid=45049 , Last Accessed 18th April, 2017
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