## 1303AFE Economics for Decision Making 1

Written Assignment

Student Name:

Student Number:

Instructions:

Submission deadline for the assignment is…

• Your assignment must be typed in a word document in .doc or .docx format – no pdf or .pages. Assignments submitted in any format other than word will not be marked.
• For calculation questions, you are required to display all workings.
• You must draw your diagrams by hand; then scan (or take a picture) and insert your drawings into your word document.

The online submission point of your completed assignment can be found under ‘Assessment’ tab, Written Assignment folder, in the course website. When submitting students must also fill in the digital cover sheet provided in the folder. Failure to follow the submission requirements may result in a null mark.

Question 1

1. Explain the relation between natural rate of unemployment and the full employment.

(2 marks)

1. The current unemployment rate is 7.5% and the number of people in the labour force is 165,475. Use this information to find the following.
2. How many people are unemployed?
3. If the working age population is 196,547, what is the labour force participation rate?

(2 marks)

1. Suppose that the size of the labour force increases by 20,000 people. What would happen to the unemployment rate? Assume that the number of people unemployed does not change. Explain your answer by referring to the relevant equation.

(2 marks)

1. Hien cannot get a job as an accountant as she has not updated her skills to use the relevant computer programs required in the accounting profession. Is Hien frictionally unemployed, structurally unemployed or cyclically unemployed? Explain your answer.

(2 marks)

Question 2

1. Describe the various key roles of the Reserve Bank of Australia (RBA) as specified on their website.

(1 mark)

1. i) Assume that the reserve ratio in a country is 20%.  Calculate the simple money multiplier?

(1 mark)

1. Suppose that customers deposit \$800 into their banks. Based on the simple money multiplier calculated in part i), calculate the final change in the money supply available in the banking system.

(1 mark)

• Calculate the final change in the money supply available in the banking system if the reserve ratio decreases to 16%. Explain briefly how money multipliers work.

(2 marks)

1. The Central Bank of Japan would like to increase the interest rates in the economy. What open market operation (OMO) action should the Central Bank of Japan take? Explain in detail the OMO process and its implications for the cash rate, interest rates, inflation and GDP. Draw by hand the effect of the OMO process using the MD-MS diagram.

(4 marks)

Question 3

1. Refer to the table below.
 Price Level Real GDP Demanded (in Billions) Real GDP Supplied (in Billions) 10 100 20 25 75 40 40 55 55 75 25 80 100 15 90 125 10 95

1. Using the information provided in the table above, plot the Aggregate Demand & Aggregate Supply curves by hand. Insert your drawing below.

(2 marks)

1. Identify the macroeconomic equilibrium. Indicate this point on your drawing from part i.

(1 mark)

• Assume potential GDP is at \$40 Billion. Illustrate potential GDP on your drawing. Is there an inflationary or recessionary gap? Explain why.

(2 marks)

1. Assume that the US macroeconomic equilibrium is equal to the potential GDP. Americans are becoming more cautious with their household spending due to the uncertainty of the presidency of Donald Trump. Using AD-AS model, explain carefully the immediate and long term effects of the event towards the economy. Draw by hand the appropriate AD-AS diagram to support your explanation.

(4 marks)

1. Watch the video available at the following link, and write a brief description of the event described in the video.

Assume that prior to the event Thailand’s macroeconomic equilibrium was equal to the potential GDP. Using AD-AS model, explain carefully the immediate and long term effects of the event for the Thai economy. Draw by hand the appropriate AD-AS diagram to support your explanation.

(4 marks)