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# Macroeconomics

MACROECONOMICS

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Introduction
The labour market is one of the pillars of global economy. This means that all aspects surrounding the
labour market should be managed properly. Labour force, participation rate, unemployment rate and rate of
cyclical employment are some of the aspects surrounding labour markets (Thompson 2013, p.34). From
demographic information, these aspects can be calculated easily.

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The table below contains labour market information. The information has been used in various calculations.

Demographic Group Number of Residents
Full-time workers 7,000
Part-time workers 2,000
Unemployed and looking for work 600
Unemployed and not looking for work due to
discouragement over job prospects

500

Not working due to disability 300
Not working due to retirement 900
Under the age of 15 3,000
Total Population 14,300

a) The labour force in this economy
Labour force refers to the part of a population that is able to work; employed or seriously looking
for work. From the information provided in the table above, the economic labour force is as
follows.
Economic labour force = full-time workers + par-time workers + unemployed and looking for
work
=7000+2000+600= 9600
b) Labour force participation rate for this economy
Adult Population = Total population – Under the age of 15

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This is equal to 14,300 – 3,000 = 11,300
Labour force participation rate = x 100 = x 100 = 84.96%

c) The Unemployment rate for this economy
Unemployment rate is given by

x 100 = 6.25%

d) The rate of cyclical unemployment
 Natural rate of unemployment of 5%.

Rate of cyclical unemployment is given by:
Actual Unemployment rate – Natural rate of unemployment
This is equal to 6.25% – 5% = 1.25%

1. Analysis of events using the loanable fund market diagram
a) Consumers decide to save more to prepare themselves for the future (at any given interest
rate). Assume the government budget balance is zero.

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Demand 2

Supply 2
E2

Size of loanable funds shifts right and the real interest(r) rates goes down. A reduction in interest rates
catalyses the economy as many investors are attracted to invest which in the long run pushes the rates
up

A reduction in the rate of income tax by noting that the source of the supply of loanable funds coming from
both private as well as public saving
E1

Quantity of Loanable
Funds (Q) Q1 Q2
Supply 1

Real Interest
Rate (r)

r1

Demand 1

Supply 1

Real Interest
Rate (r)

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Demand2

E2

r2

Q2

Reduction in income tax expands the income of the public and private sector. This leads to reduced
demand for loanable funds hence the curve shifts left while the interest rate goes down

1. A summary of a 10 minute video available at
www.gapminder.org/videos/what-stops-population-growth
The summary is highlighting the most interesting facts therein.

Hans Rosling explains that poverty has been a catalyst of population growth in developing countries
in his explanation using the bubbles in the box theory. In this theory, he projects that the
industrialized population in 2050 will be 2 billion. He states that control of mortality rate and
introduction of family planning methods are critical aspects in controlling population increase. He
further states that governments and private sectors should invest dearly in industrialization to make
families stay engaged in their operations and remain in the course of owning a car rather than a

E1

Quantity of Loanable
Funds (Q) Q1

r1

Demand 1

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bicycle. He finally warns that the population poverty levels are likely to go up if growth oriented
measures are not put up. This theory is important as it acts as a benchmark for governments in
planning and focusing on economic tools to look at in satisfying their citizens.

1. Assuming that a nation is reporting GDP of dollars a, and experiences a change of b per annum, the GDP
achieved after c years is as follows.
\$a× (1+ 0.0 b) c
It is assumed 0 ≤ b < 10
If real GDP per capita in Gotham grows at an average annual rate of 2.0%, real GDP per capita in 100 years
will be:
[\$20,000 × (1 + 0.02) 100] =\$144,893
At an average annual rate of growth of 1.5%, real GDP per capita in Neverland in 100 years will be:
[\$20,000 × (1 + 15/1,000)100]= \$88,641
Although the two nations have equal GDP currently, Neverland’s growth rate is 61.2% of Gotham’s growth
in living stands. This is calculated as below.
× 100% =61.2%
2. Summary of the key arguments on the debate around Australian government debt and deficit
for the Turnbull government.

A government’s deficit is a key phenomenon in many developing countries and few developed
countries. Deficits are usually brought about by current or past governments spending more than
their total revenue collections. A country’s inability to fund its development activities after settling
its recurrent expenditure is the ideal explanation of budget deficit. This situation is a common
definition of crisis in economy that leads to economic slump. Additionally, this ends up causing
increased unemployment rates thus promoting criminal actions. This condition has created hot air
which has made economists elucidate on the reasons why there should be unwavering concern about
budget deficits. The key grounds touch on economic stress which causes death of industries. This

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leads to poor growth in a country as citizens cannot afford much in their life. It is worth noting that
the poverty line is the lowest threshold in which one cannot afford daily meals. Unavailability of
sustainable budget pushes the government to issue cheap bonds which is a major cause of making the
private sector get deprived of capital. If the government in authority is unable to control this effect, it
results into inter-generational transfer of debt thus crippling a country’s ambitions of development in
the future. Balanced government budget is phenomenal as it creates a favourable atmosphere for
sourcing funds in the international market. It also frees the government thus giving it an opportunity
finance development projects thus catalysing economic growth. A balanced budget after continued
period of investment results into budget surplus which is an important economic condition. This
allows a country to engage in economic research and explorations on how to improve the economy
and how to invest abroad in other developing countries which further expands its budget and
promotes recreational activities. This being the case, Scott Morrison should put in place budgetary
policies. The policies should focus on monetary measures to control the amount of money in
circulation and fiscal policies by controlling the borrowing rates as well as encouraging the public to
participate in maintaining the economic.

References

Thompson, S (2013), Global Labour markets, (Online)