Tutorial 11
3 Pages
English
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Tutorial 11

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3 Pages
English

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Mcoecncs (Em ON110) Tutoil 11 1. C 2. B 3. A Long Answer 1) (i) Demand Pull inflation is when aggregate demand is greater than aggregate supply of goods and services at a particular general price level. (ii) Cost push inflation is when aggregate supply rises above aggregate demand at a particular price level. This can also be seen as an increase in the input costs with the absence of an equivalent increase in aggregate demand.+ (i) Keynesian’s believe that demand pull inflation is caused by an increase in aggregate demand. The increase in aggregate demand coupled with an incapability to meet this demand forces prices of outputs to rise and because of competition among agents for inputs the price of inputs also rises. Money supply will not affect inflation, instead inflation will result in a change in money supply because a change in aggregate income. (ii) Monetarists believe that inflation is solely determined by an excessive growth in money supply. Since Monetarists believe money supply is wholly controlled by monetary authorities, inflation is also determined primarily by the monetary authorities. (i) Wage push inflation is when unions demand for an increase in nominal wages that may be greater than the current inflation. Since wages rise, the input costs of the employer rises and thus a rise in output prices must result to compensate for the loss. The increase in output prices will cause inflation to rise. (ii) Profit push ...

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Macroeconomics (ECON110) Tutorial 11 1. C 2. B 3. A Long Answer 1) (i) Demand Pull inflation is when aggregate demand is greater than aggregate supply of goods and services at a particular general price level. (ii) Cost push inflation is when aggregate supply rises above aggregate demand at a particular price level. This can also be seen as an increase in the input costs with the absence of an equivalent increase in aggregate demand.+ (i) Keynesian’s believe that demand pull inflation is caused by an increase in aggregate demand. The increase in aggregate demand coupled with an incapability to meet this demand forces prices of outputs to rise and because of competition among agents for inputs the price of inputs also rises. Money supply will not affect inflation, instead inflation will result in a change in money supply because a change in aggregate income. (ii) Monetarists believe that inflation is solely determined by an excessive growth in money supply. Since Monetarists believe money supply is wholly controlled by monetary authorities, inflation is also determined primarily by the monetary authorities. (i) Wage push inflation is when unions demand for an increase in nominal wages that may be greater than the current inflation. Since wages rise, the input costs of the employer rises and thus a rise in output prices must result to compensate for the loss. The increase in output prices will cause inflation to rise. (ii) Profit push inflation is when monopolistic companies attempt to increase their profit margins by raising the price of their outputs. Since there is no alternative, agents are forced to purchase from this increased output price. The payment of increase output prices will cause inflation to rise. Cost push inflation can be viewed as the outcome of social conflict over the distribution of wealth because each party, the employer and employee are both demanding for an increase in their wealth though increased profits or wages. This causes a wageprofit spiral because an increase in either of the element will generally result in a demand for increase in the other element. Since both agents are attempting to increase their income there is a cost push inflation.
Week Beginning 10/06/02
 KelvinChan
 Page1
Macroeconomics (ECON110) Tutorial 11 2) (a) Full employment is defined as the total number of vacancies being equal to or greater than the total number of unemployed person. No reference is made as to whether the unemployed persons has the capacity or location factors to fulfill the vacancies. The implication sis that frictional and structural unemployment are ignored if there are the equivalent job vacancies available. The unemployment rate accounts for both structural and frictional unemployment. Since the economic definition ignores the two component s full employment is not the same as zero employment because zero employment means that everyone has a job. Frictional and structural unemployment can determine full employment because these types of unemployment do not necessarily mean there are no job vacancies. Demanddeficient employment and structural employment are additional to full employment because the presence of these two types of employment will always mean a deficiency of jobs.Demanddeficient unemploymentis unemployment induced by an excess aggregate supply. Since there is an insufficient demand firms are not willing to employ the number of workers required to reach full employment.Wageinduced unemploymentis when workers demand a higher pay than firms are willing to pay for full employment. Since firms need fund the higher pay there are unable to employ a larger workforce. (b) 1-U & U=& & U(a&+N-Y) LF Unemployment RateRiseFall Constant As labour productivityConstant Increasein Labour Productivity increase theUnemployment rate. As a&unemployment rate willNo change in workerworkers increase their decrease. This isproductivity means noproducitivty less workers because more workerschange in aggregateare required to complete are required to completeoutput with samethe same amount of the same amount ofworkers work.Therefore firms output employless and thus more people unemployed As the labour force fallsConstant Increasein Labour Force the unemployment rateunemployment rate & NLF falls. Nochange in the This is because lessnumber of peopleThere are more people people are seeking workdemanding workseeking jobs, Unemployment rateConstant UnemploymentRate Aggregate Output increase. falls & YLess people areMore output means required to create themore workers. Firms lower amount of output.employ more. Firms employ less.
Week Beginning 10/06/02
 KelvinChan
 Page2
& & Y=a+N+1 R LF
Week Beginning 10/06/02
Macroeconomics (ECON110) Tutorial 11
 KelvinChan
 Page3