Labor Force Statistics: Underemployment and Marginal Attachments
1.a) Underemployed are those person in the labor force who are presently employed into a job, however, the person is underutilized. Contrary to this, marginal attachments refers to those person, who do not provide any active participation in the labor force, however they are deliberately looking for work in the coming days (Neff, 2017). Thus, underemployed people can be treated as employed, however the marginal attachment workers will be treated as unemployed.
b) i. 5% people are unemployed out of total labor force. Thus, the number of people unemployed is:
165475 x 7.5%
= (165475 x 7.5)/100
= 12410
Therefore, 12410 people are unemployed.
ii. Labor force participation rate =
(Number of actively participating people in the labor force / Total number of eligible people to participate in labor force) x 100
Considering the given data, labor force participation rate is = (165475/196547) x 100
= 84.19
Therefore labor force participation rate in 84.19%.
c) Increase in the labor force can cause a decrease in the rate of unemployment. Considering the given information, that the number of unemployment rate remains same, which means there is less proportion of population who are still unemployed.
Present unemployment rate = [12411 / (165475+20000)] x 100
= (12411/185475) x 100
= 6.69%
Therefore, unemployment rate at present date will change by 6.69%.
d) Considering the given information, Ben is structurally unemployed that refers to type of unemployment which arises due to the mismatch between the demand for skill of a labor and the skill that a labor actually possess. As Ben is highly skilled participant in the labor force, demand for type of job is not present in the market. Due to the lack of the demand of his skills, Ben is not yet employed.
2.a) Reserve Bank of Australia or the RBA is he Central Bank of the country that plays important role that include establishing monetary policy for the country so as to provide the country sound financial condition. When it comes to the gold reserve and foreign exchange of the country, then it is also controlled by the RBA. Moreover, it is also accounted for facilitating banking service and registry of various government agency of the country. One of the key function of the RBA is to ensure monetary and banking policy of the Australia is in the best interest to the Australian citizens so as to enable them to have better standard of living.
Calculating Unemployment and Labor Force Participation Rate
i. Money multiplier of a nation is = 1/ Reserve ratio
Assuming that the reserve ration in a country is 8%, money multiplies of the nation would be as follows:
Money multiplier = 1/0.08
= 12.5
Therefore, the money multiplier of the nation is 12.5
ii. Change in money supply utilizing the money multiplier = deposit x money multiplier
Money supply = 1200 x 12.5
= 15000
Change in money supply = 150000$ – 1200$ = 13800$
Therefore, change in the money supply available in the banking system is 13800$.
iii. Decrease in the reserve ratio is 4%
Therefore, money multiplier is = 1/0.04 = 25
New money supply is = 1200$ x 25 = 30000$
Final change in the supply of the money = 30000$ – 1200$ = 28800$
According to the theory of the money multiplier banks are used to lend their additional reserve post reserving to the central bank. In the cyclical process, money that bank lends out get deposited to it again that is again given as the loan and adds to the money supply (Damjanovic et al., 2016). However, during this successive reserves, amount of money that is being lend out gets smaller and the ratio between the change is known as the money multiplier.
c) Open market operations is a tool that allows central bank to control the money supply in the economy. Initially a base interest rate is set by the central bank because a fall in the interest rate would reduce saving and return would be smaller (Del Negro & Sims, 2015). In other words, borrowing become cheaper so that consumers can take loans at lower repayment schedule.
Figure 1: MD-MS diagram
As the MD-MS diagram represent, if the Central Bank of Japan wants to increase the interest rate of the country, then it has to reduce the money supply. Reduced money supply will create a new equilibrium, where the money demand and money supply will create a new equilibrium, leading to a higher interest rate. With the reduced money supply, there will be higher inflation rate as the nation face reduce higher interest rate, it will lead the fall in the money supply in the successive period that will cause rise in the price of the products and services.
The Role of Labor Force in Decreasing Unemployment
3.a) i.
Figure 2: supply and demand equilibrium
ii. E is the macroeconomic equilibrium point on the diagram, where the equilibrium price is 35 and real GDP is 260 billion dollar.
iii. Considering the figure 2, it can be stated that there will be inflationary gap as the equilibrium occurs at 260 billion GDP at price level 35.
b)Considering the fact the Australia’s macroeconomic equilibrium is equal to the potential GDP, then it can be stated that it would be long run level of output for the economy. It inherently means that, if there is rise in the demand for the iron and coal ore, it will lead to rise in the export of the country.
Figure 3: AD-AS model
From the figure, it can be seen that, it will shift the Ad curve from AD to AD1, which will lead to rise in the price. Over the time, price in the economy during long run will increase through the cyclical process until equilibrium is achieved in long run.
c) According to the video Japan’s GDP has fallen by 0.4% during the last quarter, however according to the annual rate basis it is as high as 1.4%. Lower domestic demand was one of the reason for the same, during short run price will be reduces owing to the excess supply and due to the fall in demand unemployment will be higher and the fall in the output (Keynes, 2016).
Figure 4: AD-AS diagram
From the figure 4, it can be seen that, when it comes to long run aggregate supply curve will shift rightward leading to production of output as high as full employment situation.
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