Assignment
Question 1
a) Illustrate demand-pull and cost-push inflation using the AD-AS model for the short-run period.
b) Assuming real GDP is initially below the full-employment level, which type of inflation is worse in your opinion [justify your opinion].
Question 2
Complete the following table.
|
Year (January)
|
Working age population (millions persons)
|
Labour force (millions persons)
|
Employed (millions persons)
|
Unemployed (millions persons)
|
Participation rate (%)
|
Unemployment rate (%)
|
|
2015
|
19,169,000
|
|
11,642,000
|
770,000
|
|
|
|
2016
|
|
12,671,000
|
11,938,000
|
|
65.13%
|
|
|
2017
|
19,763,000
|
12,789,000
|
|
738,000
|
|
5.77%
|
|
2018
|
20,082,000
|
|
|
|
65.56%
|
5.47%
|
Question 3
Let's say the economy has fallen into a recession and the inflation rate falls to zero percent.
a) What open market operations is the Reserve Bank of Australia likely to engage in?
b) Why is the interest elasticity of investment important to the Reserve Bank's decision regarding interest rates?
Question 4
According to the Keynesian model of the economy, aggregate expenditure is the key determinant of the equilibrium level of real GDP.
Y = C + I + G + X - M
C = C0 + cX (Y - T)
|
Symbols
|
Meaning
|
Value
|
|
Y
|
Real gross domestic product
|
|
|
C
|
Consumption expenditure
|
|
|
C0
|
Autonomous component of consumption expenditure
|
$500 billion
|
|
c
|
Marginal propensity to consume
|
0.8
|
|
T
|
Taxes imposed
|
$250 billion
|
|
I
|
Planned investment expenditure
|
$50 billion
|
|
G
|
Government expenditure
|
$300 billion
|
|
X
|
Export expenditure
|
$30 billion
|
|
M
|
Import expenditure
|
$35 billion
|
a) Calculate the income-expenditure multiplier.
b) Calculate the equilibrium level of real gross domestic product.
c) If planned investment expenditure increased from $50 billion to $60 billion (ceteris paribus), calculate the economic growthrate.
d) In the above model, what simplifying assumptions have been made about the tax paid and the spending on imports?