Unemployment rate in Soesmantosia

Question 1
a) The current unemployment rate in Soesmantosia is 7.18%. The number of people in the labour force is 173,285 persons. Use this information to find the following. (2 marks)
i. Calculate the number or people unemployed.
ii. The working age population is recorded as 193,255 people. Calculate the labour force participation rate.

b) Following from part a), suppose that the size of the labour force increases by 18,000. 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, supported with the necessary calculations. (2 marks)

c) John is a recent university graduate in marketing major. In the past three months he has applied for several positions advertised by market research companies. He however has not yet been able to secure a position. Is John frictionally unemployed, structurally unemployed or cyclically unemployed? Explain your answer. (2 marks)

d) Explain and elaborate the relationship between full employment and natural rate of unemployment. (2 marks)

Question 2
a) i) Assume that the reserve ratio in the banking system of Tommynesia is 16%. Calculate the simple money multiplier. (0.5 marks)

ii) Suppose that on a given day customers deposit $1,700 into their banks. Based on the simple money multiplier calculated in part i), calculate the total amount that the money supply in the banking system will eventually increase to.
(0.5 marks)

iii) If the reserve ratio decreases to 12.5%, calculate the total amount that the money supply in the banking system will eventually increase to. Assume the amount of funds initially deposited by customers remain at $1,700. (1 mark)

iv) Explain in detail how the money multiplier process works. (1.5 marks)

b) In order to further optimize economic growth, the Central Bank of India would like to see a decrease in interest rates economy wide. What open market operation (OMO) action should the central bank 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 Money Demand-Money Supply (MD-MS) diagram. (4 marks)

c) Describe three key roles of the Reserve Bank of Australia (RBA). You may refer to RBA’s website and/or other sources. (1.5 marks)

Question 3
a) The table below gives the level of GDP demanded and supplied at various price levels for Banana Republic.
Price Level Real GDP Demanded (in Billions) Real GDP Supplied (in Billions)
120 320 215
125 290 230
130 275 245
135 260 260
140 245 275
145 210 290

i. Using the information provided, plot and draw the Aggregate Demand and Aggregate Supply curves by hand. Insert your drawing below. (2 marks)

ii. Identify and show the macroeconomic equilibrium on your drawing from part i. (1 mark)

iii. Assume potential GDP is at $250 Billion. Illustrate the potential GDP on your drawing from part i. Is there an inflationary or recessionary gap? Explain why. (2 marks)

b) Assume that the macroeconomic equilibrium in South Korea is initially at full employment. South Korean businesses are becoming increasingly more optimistic in their spending due to favourable political development between South Korea and North Korea. Using the AD-AS model, explain carefully the immediate and long-term effects of this event towards the South Korean economy. Draw by hand the appropriate Aggregate Demand-Aggregate Supply diagram to support your explanation. (4 marks)

c) Watch the video available at the following link.
https://www.youtube.com/watch?v=ptSfStsjgX4
Write a brief description of the event described in the video.

Assume that Australia’s macroeconomic equilibrium was at full employment prior to the event occurring. Using the AD-AS model, explain carefully the immediate and long-term effects of the event for the Australian economy. Draw by hand the appropriate Aggregate Demand-Aggregate Supply diagram to support your explanation.