Assignment Problem:
Problem 1: Adam Smith remarked in "The Wealth of Nations' concerning the balancing of the government budget."What is prudence in the conduct of every private family can scarce be folly in that of a great kingdom"
What problems might there be if the government decided to follow a balanced budget approach to its spending.
Problem 2: The country of Eastralia is experiencing the following unemployment:
(i) 1750 seasonal workers harvesting fruit have finished picking for the season.
(ii) 800 motor vehicle workers have been retrenched because employers have decided to reduce production due to a fall in demand for motor vehicles.
(iii) 250 skilled technicians are unemployed because their electrical mechanical skills have become redundant as firms have re-equipped with electronically advanced controlled equipment.
(iv) 150 skilled workers are unemployed as a result of their firm losing an export contract to a competitor in another country who has recently installed new technologically advanced production methods.
(v) Because they are convinced that no work exists for them in a depressed economy, 370 people aged over 55 years who are skilled have ceased looking for employment.
(a) What is the number of frictional/seasonal unemployed in Eastralia?
(b) What is the number of structurally unemployed?
(c) What is the number of cyclically unemployed?
(d) What category of unemployed do the people in (v) fit into?
(e) Explain whether or not there is a clear cut distinction between frictional, structural and cyclical unemployment.
Problem 3: Design an anti recession stabilization policy, involving both fiscal and monetary policies which is consistent with:
(a) A relative decline in the public sector.
(b) Greater income equality
(c) A high rate of economic growth.
Problem 4: Trace through with the assistance of diagrams, the effect of a fall in the money supply on investment demand and aggregate demand.
What will happen to real GDP, unemployment and inflation? What factor(s) will determine the effectiveness of this policy?
Problem 5: Indicate whether each of the following creates a demand for, or supply of Euros in foreign exchange markets:
(a) An Australian importer purchases a shipload of French wine.
(b) A German motor vehicle manufacturer decides to build an assembly plant in Adelaide.
(c) An Australian university student decides to spend a year studying at an Irish university.
(d) A French manufacturer exports machinery to Morocco on an Australian ship.
(e) An Australian government bond held by a Dutch citizen matures.
Problem 6: Draw an aggregate demand/aggregate supply diagram where equilibrium occurs below full employment level of output. Now show the impact of a leftward shift in the aggregate supply curve. What developments might cause such a shift?
Problem 7: Explain and illustrate the following statement:
"A deficit on the balance on current account will impose severe constraints upon domestic economic policies"
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