Do you think that macroeconomic policy should be designed to achieve a measured unemployment rate of zero? Why or why not should this be the case?

            According to my opinion, macroeconomic policy should be designed to achieve a measured unemployment rate of 0. Unemployment is undesirable in all societies. Macroeconomic policies such as monetary policy, fiscal policy and other flexible labor market policies can bring down unemployment rate. For instance, monetary policy reduces unemployment by cutting interest rates with the purpose to enhance aggregate demand. In my views unemployment can bring many economic and social problems in the country (Dwivedi, 2002). Moreover, it can also influence overall GDP and national economy. Thus, to control inflation and other economic problems we should design our macroeconomic policies to reduce unemployment.   

a) How did the classical economists interpret long-run unemployment?

            Classical economists interpret long-run unemployment as a clear indicator of future recession. They believe that unemployment occurred in the employment or any kind of labor markets is basically a voluntarily generated unemployment. According to them low wages and labor behavior are the main causes of increase in unemployment rate in the country. Moreover, they added that when employees and daily wages labor doesn’t accept jobs and employment opportunities offered at low wages or low salaries, they promote unemployment in the country. Considering this increase of rejection for low wages job opportunities countries face long term impact of unemployment.      

b)  How does structural and cyclical unemployment differ and how concerned should policymakers be about these types of unemployment?

            There are two main types of unemployment in the country that are structural and cyclical unemployment. Both types of unemployment are different from each other. Cyclical unemployment is usually caused by the fluctuation (ups and downs) in the economy. Cyclical can be sometimes seasonal or because of wrong policies and financial crisis in the countries. While on the other hand, structural unemployment is the outcome of absence of demand regarding specified field of work. Policy makers should be concerned about these types of unemployment to eliminate unemployment in the country. Somehow they should focus on cyclical unemployment by researching and implementing the best macroeconomic policies.      

Question 6: (200 words total – 100 words for each part)

a)   The consumer price index (i.e. CPI) is the most commonly used measure of changes in the general level of prices in Australia. Discuss some of the advantages and disadvantages of using this measure.

          These are some advantages and disadvantages of consumer price index. CPI (consumer price index) provide advantages to the industries to understand possible demand of a particular product offered by the company. Moreover, CPI (consumer price index) also provide information about the historical values that support the economic predictors. It also provide information about the future generation of salaries and prices. While on the other hand, main disadvantage of CPI (consumer price index) is that it only provide information regarding products that customers and households usually buy for the consumption. Moreover, CPI (consumer price index) is also not enough effective to calculate inflation.    

b)   Explain why some people ‘lose’ from inflation and why do some people ‘win’ from inflation?

            Inflation is basically a continuous process that includes a rise in the price level. Inflation means the lowering of money value that falls by purchasing the goods. The banks lose more in an unexpected way to save the real power of purchasing (Dransfield, 2013). The burst of unexpected inflation includes redistribution of wealth towards the borrowers from lenders. On contrary to the unexpected inflation, some companies generate benefits by raising the prices of products rapidly. The inflation has an adverse impact on cash savings, rising prices, and fixed wages. The losers are savers, workers at fixed income, and exporters with less competitive. Winners are debtors, firms with real cut wages and public sector debt.

Question 7: (250 words total)

Which of the following would cause a growth in the money supply? Answer yes, no, or possibly and explain your answer (i.e. please provide reasons).

a.   The selling of government securities to banks;

            No, selling government securities to bank can cause reduce in the money supply. Basically, federal control money supply in the country to control overall economy. Fed buy government securities and bonds in order to gain growth and increase in money supply. Moreover, by selling these securities they reduce prices and increase interest rate (Mankiw, 2016).

b.     A fall in interest rates;

            No, decrease in interest rate reduces market demand for securities and investment therefore money circulation get negative effect. While on the other hand, increase in money supply results in the decrease of overall interest rate in the country.

c.   An increase in government expenditure, financed by borrowing from the banking sector;

            Increase in government expenditure, financed by borrowing from the banking sector result in the increase of interest rate in the country. High interest rate grab the attention of investors to invest in the financial markets to earn more financial benefits. Thus in short, it support growth of money supply.   

d.   The purchase of government securities by the Central Bank from the banking sector;

        Yes, purchases of government securities by the central bank from other banking sectors can support growth of money supply.  Basically, central bank sometimes purchases government securities to regulate money supply in the country. Purchases result in the increase of money supply and buying result in the decrease of money supply because of changes occurred in demand and interest rate.   

e.   It is agreed by the Treasurer and the Governor of the Central Bank to reduce the target rate of inflation.

            Yes, decrease in the target rate of inflation can bring deflation in the country. People afford to buy things at cheap rates thus as a result of this trade get promotes and money circulates at fast spread. Thus as a result of this money supply get support in growth.

References of Economy

Dransfield, R. (2013). Business Economics. Routledge. Retrieved 2019

Dwivedi, D. N. (2002). Microeconomics: Theory And Applications. Pearson Education India.

Mankiw, N. G. (2016). Principles of Economics. Cengage Learning.