Question 1a) What is the difference between underemployment and marginal attachment to the labour market?

| December 7, 2018

Question 1
a) What is the difference between underemployment and marginal attachment to the labour market?
(2 marks)

b) The current unemployment rate is 7.5% and the number of people in the labour force is 165,475. Use this information to find the following.
(2 marks)
i. How many people are unemployed?

ii. If the working age population is 196,547, what is the labour force participation rate?

c) Suppose that the size of the labour force increases by 20,000 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.
(2 marks)

d) Ben has been looking for a job after graduating from his PhD. He has been searching for over 6 months since graduating. Is Ben frictionally unemployed, structurally unemployed or cyclically unemployed? Explain your answer.
(2 marks)

Question 2
a) Describe the various key roles of the Reserve Bank of Australia (RBA) as specified on their website.
(1 mark)

b) i) Assume that the reserve ratio in a country is 8%. What would be the simple money multiplier?
(1 mark)

ii) Suppose that customers deposit $1,200 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. (1 mark)

iii) Calculate the total change in the money supply available in the banking system if the reserve ratio decreases to 4%. Explain how money multipliers work.
(2 marks)

c) The Central Bank of Japan would like to increase the interest rates in the economy. What open market operation (OMO) action should the Central Bank of Japan 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.
(4 marks)

Question 3
a) Refer to the table below.

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