Suggested Answer for December 2019

Q1. (a) Full employment means a situation in which all the people who are willing and able to
work can find employment. An economy operates at an unemployment rate equal to the sum
of the frictional rate + structural rate (natural rate of unemployment) or cyclical
unemployment is zero.
Full employment is important for policy makers to make decision. If the actual rate raises
above the natural rate, recession happened, and policy makers can apply some expansionary
policy. Vice Versa.

Q1 (c) Refer to lecture slide 14 and 24, Topic 7.

Q2 (a) Refer to lecture slide 34 (for explanation) & 35 (For long run macroeconomics
equilibrium, Topic 8. Refer to below diagram for short-run macroeconomics equilibrium.

Q2 (b)
AD RGDP PL
i Increase Increase Increase
ii Decrease Decrease Decrease
iii Increase Increase Increase
iv Increase Increase Increase
v Increase Increase Increase

Q3 (b) Expansionary fiscal policy

Refer to answer for tutorial 9: structured question Q1 (a) and Exam style question Q1

Q4 (a) Expansionary monetary policy

Refer to lecture slide 17 and 19, topic 10.

Q4 (b) Refer to Lecture slide 13 with explanation, topic 10.