1. Unemployment and inflation are labeled as the twin problems of the economy that arise from economic instability.

1. Assume that total population of an island country Y is 6000; population under 16 years of age or institutionalized is 1300; population not in the labour force is 1600; population unemployed is 240; part-time workers looking for full-time jobs are 110.
2. (i) Calculate the official unemployment rate in the country Y?

• (ii) What two types of unemployment could be associated with positive developments in Malawis agricultural sector and how?
• Assume that in 2015 the natural rate of unemployment in Malawi was 6.5% and the actual rate of unemployment is 11% while real GDP was K740 billion. Use Okun’s law to determine Malawi’s full-employment output.
• At the end of Malawi’s 2016/2017 fiscal year, annual rate of inflation was 25.2% and Sigele’s annual income of K450,000 was raised by 15%. By what percentage did Sigele’s real income change?
• Using a well-labelled graph, explain briefly how “Aggregate supply shocks can cause both higher rates of inflation and higher rates of unemployment” in Malawis agro-based economy.
Suppose Sensei saves K750,000 with the national Bank of Malawi which offers an annual interest rate of 12% and charges a marginal tax rate of 22% per annum.
1. How much tax in percentage terms would Sensei pay at the end of 2 years and 6 months?

How much money would Sensei accumulate in his savings account by the end of 2 years and 6 months?

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