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ask Assignment 3 consists of two problems worth 5 marks each. Text material which may be relevant to the question may be drawn from any of text chapters 12, 13 and 14. Question 1 Using data from the...

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Assignment 3 consists of two problems worth 5 marks each. Text material which may be relevant to the question may be drawn from any of text chapters 12, 13 and 14.

Question 1

Using data from the Australian Bureau of Statistics (ABS) http://www.abs.gov.au/ collect information on unemployment and inflation rates for Australia over the period 2001 to 2016, inclusive. Employ annual data. Be explicit and define and provide sources for the data obtained.

Plot on a single diagram the relationship between inflation and unemployment, measuring inflation on the vertical axis and unemployment on the horizontal axis. Comment on whether any relationship exists between these variables and any implications of your findings.

Question 2

Employ the aggregate demand and supply model for the Australian economy, to analyse the consequences for real GDP and the general price level of the following scenarios. Confine your analysis to the use of short-run AD/AS curves. In your response clearly state your assumptions and illustrate your answers with diagrams.

(a) India has placed a 30% tariff on chickpea exports from Australia,
(b) The demand for Australian wine in China has substantially increased,
(c) The federal government plans to spend approximately $5 billion on Snowy Hydro 2.0 to generate more electricity power capacity,
(d) The price of oil, a product Australia primarily imports, fall substantially,
(e) An increase in the immigration intake substantially increases the Australian labour force.

Rationale

The question addresses the following learning outcome:

  • be able to examine critically the health of the economy as a whole through the analysis of major economic variables and advise on likely policy alternatives.

Answered Same Day May 09, 2020

Solution

Deepika answered on May 11 2020
147 Votes
Question 1
Using data from the Australian Bureau of Statistics (ABS) http:
www.abs.gov.au/ collect information on unemployment and inflation rates for Australia over the period 2001 to 2016, inclusive. Employ annual data. Be explicit and define and provide sources for the data obtained.
Plot on a single diagram the relationship between inflation and unemployment, measuring inflation on the vertical axis and unemployment on the horizontal axis. Comment on whether any relationship exists between these variables and any implications of your findings.
Ans.
Phillips curve suggests that changes in the level of unemployment have a direct and predictable effect on the level of price inflation. It states that inflation and unemployment have a stable and inverse relationship. We took out the inflation and unemployment data for the Australian economy for the period 2002-2016. The data is shown in Table 1 and these two variables are plotted against time in Figure 1.
    Yea
    Inflation (in %)
    Unemployment
    2002
    2.8
    6.3
    2003
    2.8
    6
    2004
    2.3
    5.1
    2005
    2.7
    5.1
    2006
    3.8
    4.9
    2007
    2.3
    4.4
    2008
    4.4
    4.2
    2009
    1.8
    5.6
    2010
    2.9
    5.1
    2011
    3.4
    5.1
    2012
    1.71
    5.23
    2013
    2.45
    5.66
    2014
    2.51
    6.07
    2015
    1.51
    6.06
    2016
    1.25
    5.71
Source: Statista, The Statistics Portal
https:
www.indexmundi.com/g/g.aspx?v=71&c=as&l=en
Table 1 Unemployment and Inflation data for Australia (2002-2016)
01234567200220032004200520062007200820092010201120122013201420152016Chart TitleInflationUnemployment
Figure 1 Unemployment and Inflation plotted against the time
If we plot these two variables on a single diagram as shown in Figure 2, we could trace out some relationship between inflation and unemployment.
Figure 2 Unemployment and Inflation plotted against each other (Philips Curve relation)
Inflation is measured on the vertical axis and unemployment on the horizontal axis. In the scatter of values, in the first look there seems no specific relation between unemployment and inflation. But giving it a closer look, we could see a pattern that falling inflation is accompanied by rising unemployment and vice-versa. Around 2008, inflation and unemployment coincided, almost being at the same level. After that, the gap between the two kept on rising....
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