Macroeconomics Assignment: Unemployment, Inflation, Money Creation

Macroeconomics Assignment 1
Question and Answer: Macroeconomics Assignment
Name of the Student
Course Name
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Date

Macroeconomics Assignment 2
Question and Answer: Macroeconomics Assignment
Question 2 (a)
The Australian Bureau of Statistics (ABS) classify unemployment levels based on
criteria, which comprise three basic factors, including without work, presently available for
work, and actively seeking for work. Foremost, without work criterion distinguishes those
individuals who have a job and those people who do not. In ABS view, a person working for
at least one hour within the reference week is considered employed (Gregory and Smith,
2016, p. 235). The Bureau believes that any time worked irrespective how small represents a
form of employment. The second criterion, actively seeking work, explores individuals who
actively search for employment for about four weeks but have not found a job. ABS classifies
such individuals as unemployed. Active job seeking includes telephoning, applications for
various jobs, registering with a hiring agency, and tendering for work among others. Lastly,
currently available for work criterion reflects the unemployment data of the present available
labor supply within a specified period. It helps to assess and evaluate measures and
fluctuations in unemployment levels. Although ABS use the three principles to identify key
indicators in the labor market, they are not satisfactory because of ever-changing economic
structures. For instance, it is irrational to consider someone employed because he or she
works one hour for the reference week. The criteria will be successful if it measures
unemployment based on the minimum basic amount of salary required for survival.
Question 2 (b)
Frictional unemployment refers to the form of the unemployment that arises owing to
the time spent searching for or transitioning from one occupation to another. Frictional
unemployment is inevitable in an economy because individuals search for a job while others
are switching companies every day (Abel, Bernanke, and Croushore, 2017, p. 47). Indeed, in
an economic structure in which individuals can freely change their occupations and in which

Macroeconomics Assignment 3
employers have the power to fire or dismiss inefficient employees, it is hard to eliminate
frictional unemployment. Workers will often search for better job opportunities.
Question 2 (c)
Macroeconomic policymakers need to be concerned about structural unemployment
because it is either long-lived or permanent and necessitate robust policies to correct it. In
light of Abel, Bernanke, and Croushore (2017), structural unemployment denotes a situation
in which structural changes such as technological advancement adjust labor demand patterns
(34). Policymakers should always ensure macroeconomic policies do not result in structural
changes because certain skills in the labor market may become inappropriate or unnecessary.
Structural unemployment differs from cyclical unemployment in that the former is long-lived
and challenging to address, but the latter is usually short-lived and can be addressed within a
short period. For instance, high-technology machinery replaces employees indefinitely but a
cyclical disturbance such as changes in retirement age affect the labor market for a short
period and its adverse effects can be easily addressed.
Question 3 (a)
Inflation refers to the increase in the prices of services and commodities. When the
prices of goods and services increase, the consumer’s purchasing power decreases (Abel,
Bernanke, and Croushore, 2017, p. 56). Economists claim that demand side, supply side, or
both cause inflation. According to Chu and Lai (2013), inflation caused by demand-side
factors is referred to as demand-pull inflation while that caused by supply-side factors is
known as cost-push inflation (234). Firstly, demand-pull inflation transpires when Aggregate
Demand (AD) increases at a rapid rate than Aggregate Supply (AS). In this way, the demand
exceeds supply, and thus, the firms respond by increasing prices of the services and
commodities. With the rapid growth in the economy, aggregate demand shifts from AD1 to
AD2 while long-run aggregate supply remains constant thus increasing prices from p1 to p2.

Macroeconomics Assignment 4
The level of output also increases from Y1 to Y2. This situation is illustrated using the graph
below:
Source: (https://www.investopedia.com)
On its part, cost-push inflation is also referred to as “wrong type” inflation. It is
associated with deteriorating living standards. The short-run aggregate supply shift to the left
from SRAS1 to SRAS2 thus increasing prices from P1 to P2 while reducing output from Y1
to Y2. Notably, cost-push inflation cause both falling output and inflation thus making it
challenging to address it. This situation is illustrated in the figure below: