SUGGESTED SOLUTIONS

CHAPTER
Macroeconomic
14 Problems

Section A
  1 B 2 D 3 A 4 B 5 A
  6 D 7 C 8 D 9 A 10 B
11 A 12 D 13 A 14 A 15 D
16 A 17 C 18 B 19 A 20 B

Section B
1 (a) Labour force 5 Total population – Not in labour force
Year 2010: Labour force 5 225 – 50 5 175 million
Year 2011: Labour force 5 240 – 52 5 188 million
(b) Unemployment rate 5 (Labour force – Employment/Labour force) *100
Year 2010: (175 – 165)/175 5 5.71%
Year 2011: (188 – 180)/188 5 4.26%
Year 2010 has the highest unemployment rate.
(c) Any expansionary monetary or fiscal policies

2
Years Total employed Unemployment
(thousands) rate (%)
1996 8,162.7 2.5
1997 8,805.1 2.6
1998 8,596.7 3.2
1999 8,739.7 3.0
2000 9,535.9 3.6

3
Real GNP
Trough

Recession
Trough Quarter
Recovery
 Suggested Solutions
2

4 (a) (i) Demand–pull inflation occurs when aggregate demand (AD) exceeds the aggregate
supply (AS).
(ii) Cost–push inflation refers to an increase in the general price level associated by an
increase in the cost of production.
(b) (i)
Years Labour force Unemployment rate
participation rate (%) (%)
2002 85.7 16.6
2003 84.2 17.2
2004 83.3 20.0
(ii) Both the labour force participation rate and unemployment rate increases over the
years.
(iii) Rate of inflation (2004) 5 135 – 122 y 122 3 100
5 10.66%

5 (a) Unemployment rate 5 26 – 23.5 y 26 3 100 5 9.6%

(b) (i) Structural unemployment
(ii) Cyclical unemployment
(iii) Seasonal unemployment
(iv) Frictional unemployment