Assignment

Question 1

a) Describe the components of the working age population.

- Working age population is the total number of civilians aged 15 and over.

b) The working age population is 68,690 and the labour force participation rate is 73.6%. Use this information to find the following.

i. Calculate the number of people in the labour force.
ii. If there are 5,500 people unemployed, what is the unemployment rate?

c) Suppose that the labour force decreases by 2,500 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.

= 11.4%

- As you can see, because there is fewer people within the labour force the unemployment rate will gradually increase.

d) Michael lost his job as a real estate agent due to the business going under after the global financial crisis forced the world economy into recession. Is Michael frictionally unemployed, structurally unemployed or cyclically unemployed? Explain your answer.

- Michael is cyclically unemployed. Cyclically unemployment refers to the fluctuating unemployment over the business cycle that increases during a recession and decreased during an expansion.

Question 2

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

The RBA goes on to describe 3 key roles.

1. Monetary Policy
2. Works to maintain a strong financial system
3. Issue's the nations currency;

They also emphasise that the RBA provides banking and registry services to a range of government agencies and overseas banks, along with managing Australia's gold and foreign exchange services.

b) i) Assume that the reserve ratio in a country is 16%. Calculate the simple money multiplier?

Money Multiplier = 1 divided by the reserve ratio

ii) Suppose that customers deposit $7,000 into their banks. Based on the simple money multiplier calculated in part i), calculate the total change in the money supply available in the banking system.

Well if we use the money multiplier equation above the bank is subject to hold 6.25% of the initial deposit.
= $437.5
then the rest is then able to be lended out.

iii) Calculate the total change in the money supply available in the banking system if the reserve ratio increases to 25%. Explain how money multipliers work.

The bank keeps the 4% of the 7000 as an initial holding of required reserves.

And then the excess reserves of $6720 they are going to loan out.

Which therefore leads us

This is all new money the bank has created off the initial $7000 which was deposited.

c) The Reserve Bank of New Zealand would like to increase the interest rates in the economy. What open market operation (OMO) action should the Reserve Bank of New Zealand 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.

(OMO) are referred to the buying and selling of government securities in the open market. These certain types of securities purchases help to influence the banking systems to try and stimulate growth as the sales of these securities do the opposite.

OMO and interest rates have an indirect effect. OMO's are in contrast with the monetary policy allowing a central bank to enable the controlling of money within the economy.

Question 3

a) Refer to the table below.

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

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

iii. Assume potential GDP is at $700 Billion. Illustrate potential GDP on your drawing. Is there an inflationary or recessionary gap? Explain why.

b) Assume that Australia's macroeconomic equilibrium is equal to the potential GDP. What would happen if the demand for new houses increases in Australia? 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.

c) Watch the youtube video "Japan's economy contracts in fourth quarter", and write a brief description of the event described in the video.

Assume that prior to the event the Japan'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 Japanese economy. Draw by handthe appropriate AD-AS diagram to support your explanation.