MAE203 | The Global Economy | Week 6 Test

Mark out of 10:
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MAE203 – The Global Economy
Week 6 Test
This test is worth 10% of the total marks towards this unit.
Allotted Time: 1hour
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Question 1 (3 marks)
(a) Define the following three main types of unemployment (
limit your
response to 3 sentences for each type). (1.5 marks)
Cyclical Unemployment: Cyclical unemployment can be defined as the
type of unemployment that occurs due fall in business activities in an
economy. Business activities fall due to fall in goods and services’ demand
leading to slow economic growth. Unemployment during recession is a type
of cyclical unemployment.
Structural Unemployment: Structural unemployment can be defined as
the type of unemployment that occurs due to difference in skill set of
available workers in the work force and skill employers demand from the
workers. Unemployment of typists after introduction of computer is an
example of structural employment.
Frictional Unemployment: Frictional unemployment can be defined as the
unemployment that arises from job search gap or time spent between
leaving a job voluntarily and getting a new one. Frictional unemployment
also causes when a fresher after completing education joins work force and
search for jobs.
1

(b) For each of the following, indicate if the person would be
classified as
employed,
unemployed, or
not in the labour force
by checking (X) in the correct column. Choose a SINGLE answer
for each question. (1.5 marks)
Scenario Employ
ed
Unemploye
d
Not in the
labour
force
A graduate university student actively
contacting potential employers by
email and phone who also volunteers
at the local sports club.
X
A fully qualified chef that has lost
their job and would be willing and
able to work, but has become
discouraged from searching for work.
X
A 20 year old who works in a bar for 1
hour per week but would rather be
working full time.
X
Question 2 (3 marks)
(a) Calculate the
unemployment rate and the labour force participation rate from the
following information. Show your workings. (2 marks)
Working-age population 14 million
Employed 8 million
Unemployed 0.5 million
The unemployment rate:
Labour force=Employed+ Unemployed
2

¿ , Labour force=8+0.5
¿ , Labour force=8.5 million
Therefore,
Unemployment rate= Number of unemployed
Labour force × 100
¿ , Unemployment rate= 0.5
8.5 ×100
¿ , Unemployment rate=5.88 %
The labour force participation rate:
Labour force participation rate= Labour force
Working age population × 100
¿ , Labour force participation rate=8.5
14 ×100
¿ , Labour force participation rate=60.71%
(b) Suppose
that the
data in the
following table reflects the level of consumer prices in the economy in 2018
and 2019. Calculate the annual rate of consumer price inflation from 2018 to
2019. Show your workings. (1 mark)
Space for workings:
Inflation rate= CPI2019−CPI2018
CPI2018
× 100
¿ , Inflation rate= 180−175
175 ×100
¿ , Inflation rate=2.86 %
3
Year 2018 2019
CPI 175 180