Despite the Drop in the Unemployment Rate to 6.6%, the Australia Council of Trade Unions (ACTU): Economics Assignment, Ngee Ann Polytechnic, Singapore

Assignment Brief:

1. Read the short excerpt below and answer the questions that follow

Despite the drop in the unemployment rate to 6.6%, the Australia Council of Trade Unions (ACTU) commented in a recent interview that the unemployment rate doesn’t tell the whole story. “A significant number of workers employed are looking for full-time employment. Several pandemic-hit industries, such as tourism and aviation require further support for genuine recovery from the associated recession”, said the ACTU President. (Yun, 2021)

(a) Briefly explain the type of unemployment of most concern in Australia.

(b) Explain the reason shared by the ACTU President that challenged the accuracy of the unemployment rate as a gauge of the labour market situation.

2. Read the following article extract and use the information within to answer the following questions:

As the world’s economies reel from the COVID-19 pandemic, Taiwan is on track to end the year clocking up enviable growth. In remarkable contrast to comparable industrialised economies, which have taken a battering, official
projections forecast growth of 2.5% in 2020.

For decades, Taiwan has been the world’s premier location for computer chip and electronics manufacturing. And at a time when major parts of the world were suddenly forced to work or learn from home, Taiwan’s factories were able to adapt and meet the soaring domestic and international demand.
Topping the list of a string of tech companies that registered record profits in the third quarter is Taiwan Semiconductor Manufacturing Company (TSMC), the world’s largest contract microchip maker that supplies Apple and other International brands.

There have inevitably been some victims. The hotel and tourism trade has been hit hard by the evaporation of international travel due to the travel restrictions. Combined revenue for listed hotels and tour operators fell 43% from last year, according to the Taiwan Stock Exchange.

Business for retailers, restaurants and domestic tourism has been steady since May. “We’ve already reached our sales target and we expect a two-digit growth for this Christmas season compared with last year,” said Jenny Chien, a public relations manager for Gloria Outlets in Taoyuan city.

(a) Using appropriate evidence from the article, explain the impact on THREE of the GDP expenditure components.
[Note: Remember to state whether the expenditure components would
increase or decrease]

(b) Suppose the forecasted economic growth is insufficient for Taiwan to achieve potential real GDP from the current level. State the appropriate fiscal policy and one fiscal tool that could be implemented by the government to reach this ideal state.
[Note: You do not have to explain the process in reaching this ideal state]

(c) Illustrate the effect of implementing the fiscal policy described in your answer in (b) using a sketch of the AD-AS diagram.

Note: Double click on the image below and work on your diagram in the “pop-out” word document. Close it when done. Your work will be saved automatically. Alternatively, you may create your diagram elsewhere and use the “insert” pictures or “Copy & Paste” functions to overwrite the below template.

(d) It is said that the implementation of such a fiscal policy as described in (b), will cause a “more than proportionate impact” on real GDP. Identify and explain the economic concept supporting this comment using a hypothetical example.
[Note: Elaboration must include at least 3 sectors/groups/individuals with different economic roles]

3. Read the following modified extract and use the information within to answer the following questions:

India’s pace of inflation slowed in December, falling within the central bank, the Reserve Bank of India (RBI)’s a target for the first time since the coronavirus pandemic began. The data came as a relief to RBI, which is mandated to keep inflation below 6%. This easing partly reflected the restoring of the supply chain that was disrupted by the initial nationwide lockdown, increasing the availability of transport and labour. This is further boosted by the good monsoons and the banning of exports and easing imports of food items such as vegetables. The contracting economy in the previous periods has also piled pressure on low-income Indians, millions of whom lost work during the pandemic and the resulting lockdown.

The economy remains weak, despite the recent rebound. However, Mr Nandi, an economist at Nomura thinks the RBI will hold off interest rates cuts for now. “I don’t think this is enough for the RBI to lower its guard,” he said. “Besides, non-food prices remains a threat due to factors such as domestic fuel taxation,” he added. Source: Parkin, B. (2021, January 12). Indian inflation slows to hit the central bank’s target range.

(a) Explain the causes of India’s falling inflation in December

(b) “Interest rates cuts” was mentioned in the last paragraph. Identify this policy and explain how it could cause a fall in interest rates, using one specific policy tool of your choice.

(c) Illustrate your answer in (b) by sketching the money market diagram.

(d) In the last paragraph, Mr Nandi, an economist at Nomura, commented that the RBI is unlikely to cut interest rates. What is the policy dilemma faced by the RBI?
[Hint: Consider what would be the impact on the economy when the RBI raises or reduce interest rates]