MACRO1 (ECON1010) Assignment 1

MACRO1 (ECON1010) Assignment 1 (Chapter 28, 26&28) Submit online by: 4PM 11th Sep (Friday) (the ‘Assessment Task’ in Blackboard) The following information need to be attached in the front page of the submission. (Note that in the review session for the assignment you will have an opportunity to appeal for remarking. However, you can only do this in the only tutorial that you have registered.) Tutorial Time and Day: _______________________________________________________________________________________________ Student Name : ________________________________________________________________________________________________________ Student ID: _____________________________________________________________________________________________________________ This assignment covers the following topics: • Unemployment (Chapter 28) • Productivity and Growth (Chapter 26) • Saving, Investment and Financial System (Chapter 27) READ THE FOLLOWING FIRST (Very Important) • • • • You only have a single attempt of submission (ensure to attach the final version of the assignment) After the due date, online submission will close (after that, you cannot submit online). Make sure you have included student ID and name in the front page of the assignment Working with other fellow students is strongly encouraged. However, you cannot just copy your friend’s answers. If we find out this, you will be harshly punished for the academic plagiarism. See RMIT’s policy on this http://www1.rmit.edu.au/browse;ID=sg4yfqzod48g1 Instructions to students: 1. This assignment contributes to 15% of the overall marks for the course. 2. Explain your answers, but be succinct. 3. You need to type your answers in MS Word (no hand-writing, please). 4. Label and explain any diagrams, if any, that you use carefully (labelling each axis). Page 1 of 4 Macro1 (ECON1010), 2sem 2015 Short Answer Questions: 1) (4 marks in total) Compute various indicators of the state of the labour market using the following information. Please show all of your working. If you do not, you will receive zero marks for the question(s). Demographic Group Number of Residents Full-time workers 7000 Part-time workers 2000 Unemployed and looking for work 600 Unemployed and not looking for work due to discouragement over job prospects 500 Not working due to disability 300 Not working due to retirement 900 Under the age of 15 3000 Total Population 14300 a) (1 mark) What is the size of the labour force in this economy? b) (1 mark) Calculate the Labour Force Participation Rate for this economy. Report as a percentage to two decimal places. c) (1 mark) Calculate the Unemployment Rate for this economy. Report as a percentage to two decimal places. d) (1 mark) Suppose that the natural rate of unemployment is considered to be 5%. What is the rate of cyclical unemployment? Report as a percentage to two decimal places. Page 2 of 4 Macro1 (ECON1010), 2sem 2015 2) (4 marks in total) Below you can find the per capita real GDP of the 13 countries who have joined the European Union (EU) in 2004 (except for Turkey), and the EU average in 1999 (both in Column A). It also gives the GDP per capital growth rates in 2000 (Column B). Let us assume that countries will keep growing at the given rates until these countries reach the level of the EU average. Answer the following questions and explain your answers and show all of your working (in order to obtain partial marks). Country Real GDP per capita in 1999 (before joining EU) (A) EU average Hungary (joined 2004) The Czech Rep. (joined 2004) Poland (joined 2004) Slovenia (joined 2004) Estonia (joined 2004) Cyprus (joined 2004) Malta (joined 2004) Romania (joined 2007) Bulgaria (joined 2007) Lithuania (joined 2004) Latvia (joined 2004) Slovakia (joined 2004) Turkey (pending) Growth rate of GDP per capita in 2000 (%) (B) Ratio of per capita GDP to EU average in 1999 Years to double this ratio (C) (D) $25,660 2.7 1 - $5,218 4.8 (Q2 b) (Q2 b) $5,170 $4,257 $9,994 $4,259 $13,389 $13,025 $2,323 $1,691 $3,420 $3,092 $3,818 $6,230 1.5 5.7 3.6 5.5 2.3 4.1 7.3 4.0 4.3 3.6 5.0 2.9 0.2015 0.1659 0.3895 0.1660 0.5218 0.5076 0.0905 0.0659 0.1333 0.1205 0.1488 0.2428 77.8 25.0 50.0 15.2 53.9 43.8 77.8 30.4 350 a) (1 mark) Just observing the above table (doing no calculations), are there any countries that will not be able to catch up to the level of per capita income in the EU based upon the assumption we have made? b) (2 marks) Fill in the information for Column C and D in the above table for Hungary (where it is marked as Q2b). And then, using the Rule of 70 from the textbook, how many years will the ratio of Hungary's GDP to EU average GDP take to double (hint: the growth rate of a fraction is approximately equal to the growth rate of the numerator minus the growth rate of the denominator)? How many years do you think it will eventually take real GDP per capita of Hungary to reach that of EU average? c) (1 mark) The above calculation in part b) is based on the assumption that a country’s real GDP grows at a constant rate. But in reality it does not. Why is that? Page 3 of 4 Macro1 (ECON1010), 2sem 2015 3) In this question you analyse the effects of the following economic policies in the loanable funds market diagram where we have the real interest rate on the vertical axis and the quantity of loanable funds on the horizontal axis. a) (2 marks) Demonstrate and explain the effect of a government tax increases in the loanable fund market. Which of the curves is effected by this—supply or demand—and what direction does it move. Your explanation must also include what happens to the real interest rate, the level of national savings, and the level of investment as well. b) (2 marks) Now you realise that the tax increases that you analysed above also affect the (aftertax) profitability of new investment. How would this change your explanation in Part a)? Again, use the loanable funds model to demonstrate this effect. 4) (3 marks) The level of government debt is a growing concern for the current Australian Treasurer Joe Hockey who has the responsibility of managing the government budget. Summarise the key arguments on the debate around Australian government debt and deficit for the Abbott government. Your summary must address the following; what is the major concern of running government deficits, what is the economic reasoning to have a balanced budget and when might a budget deficit/surplus be ok? Conclude by briefly discussing what policies you would suggest Joe Hockey implement to balance the budget and why. The summary should be at least half a page in length.