Macroeconomics Problems and Policy - MODULE 2

Question 1

What are reasons for taxation?

Answer 1

1* To finance government expenditure.

2* Redistribute income from the rich to the poor and create greater equality in the distribution of wealth.

3* To discourage the consumption of goods like alcholol and cigaretts.

4* To reduce the level of imports and in so doing improve the balance of payment.

5* To protect infant industries and local bussinesses by removing or reducing competition. This creates greater employment opportunities in the local economy and encourages linkages among the sectors.

Question 2

What is fiscal Policy?

Answer 2

• It is the management of the economy through the level of government expenditure and taxation. The government can use this demand mangaemnet tool to achieve macro-economic objectives by manipulating fiscal budget.
• It is the use of government expenditure and taxation to manage the economy. Fiscal policy can be expansionary or contractionary. Expansionary fiscal policy seeks to increase consumption and production. Contractionary fiscal policy seeks to reduce consumption and production.

Question 3

What is Balance of Payment?

Question 4

Economic Policy.

Answer 4

Economic policy is government actions designed to affect economic activites or help to achieve desired goals. Economics policy can take the form of fiscal policy and monetary policy.

Question 5

What is the Labour force

Answer 5

It is the number of available workers in a country. It amounts to all the people between the ages 18 - 60 years who are either working or actively seeking employment.

Question 6

What is Employment?

Answer 6

This is a state of having paid work.

Question 7

Unemployment

Answer 7

This is the state in which people who are willing and able to work but can not find work.

Question 8

Underemployment

Answer 8

This refers to individuals who accept a job for which they are over qualified or only employed on a part-time basis.

Question 9

Unemployment rate Formula

Answer 9

No. of unemployed / Actual labour force * 100

Question 10

Unemployment rate

Answer 10

This is the percentage of the accrual labour force that is unemployed.

Question 11

Types of unemployment

1.Seasonal Unemployment and Solution

Answer 11

This is where workers are unemployed during a certain period of time in a year. This type of unemployment is a result of the nature of the industry. E.g After the Carnival season.

Question 12

Types of unemployment

2.Reginal Unemployment

Answer 12

This is unemployment which exist in a particular geographical area. It is often associated with the fall of major industry in the area. E.g Refinery in Pointe-a-Pierre

Question 13

Types of unemployment

3.Structural Unemployment

Answer 13

This is cause either by a decrease in supply or a decrease in demand for an industry’s product. A decrease in demand csn result from:
a)The loss of an export market.
b)The development of a more efficient substitute.
c)Technological progress tending to a greater use of capital over labour.

Question 14

Types of unemplyment

4.Cyclical Unemployment

Answer 14

This is where it occurs with changes in the business cycle. The economy experiences period of a recession ( decrease ) in economic activities and recovery. It is the excess unemployment after taking into account structural, frictional and seasonal unemployments.

Question 15

Types of unemployment

5.Frictional Unemployment

Answer 15

This is a type of short term unemployment resulting from the time lags in involved involved in leaving one job and moving to another. It also occurs when individuals enter the market for the first time on completion of school until they find a job.

Question 16

Types of unemployment

6.Real-wage unemployment

Answer 16

This is when imperfection in the market set a wage above the equilibrium real wage. This type of unemployment is created when the governments sets a minimum wage above the prevailing wage rate or trade union bargaining and achieve wages above the equalibrium wage.

Question 17

What are some Disadvantages of Unemployment?

Answer 17

1. Loss Output- When many people are unemployed a country produces less than its potential. There are idle or unemployed resources and the economy is operating inside its PPC.
2. Loss of Tax Revenue- When people are without jobs they cannot pay taxes. The governent has less tax revenue available for expenditure purposes.
3. Increase benefit payment- Unemployment places a burden on the government to pay additional welfare grants, social assistance and unemploymnet benefits to which it receives nothing in return. (Transfer Payments)
4. Loss of Skills- When people are unemployed for long period of time, their skills are loss due to lack of practice.
5. It causes poverty- When people do not earn an income they cannit purchase goods and services to sustain or improve their living standards. This results in higher levels of poverty.

Question 18

What is Potential labour force?

Answer 18

This includes those of working age who are employed, unemployed and those who are not actively looking for employment.

Question 19

What is The Labour Force Participation Rate?

Answer 19

The labour force participation rate is the proportion of individuals from the overall population who are in the labour force.

Question 20

What is the Calculation for The Labour Force Participation Rate?

Answer 20

Formula: Labour Force / Working-Age Population * 100

Question 21

What is Full Employment?

Answer 21

It refers to the situation where all unemployment in the economy is attributed to the natural rate of unemployment.

Question 22

Full Employment?

Explain the concept of Y1

Answer 22

Y1 is defined as the level of income or the level of output produced when all non-labour resources (land,capital and enterprise) are fully utilized and unemployment is at its natural rate.