2. Unemployment and inflation are labeled as the twin problems of the economy that arise from...

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2. Unemployment and inflation are labeled as the twin problems of the economy that arise from economic instability. (a) Assume that total population of a landlocked country X is 8,250,000; population under 16 years of age or institutionalized is 1,400,000; population not in the labour force is 1,650,000; population unemployed is 550,000; part- time workers looking for full-time jobs are 155,000. (i) Calculate the actual unemployment rate in the country X? marks] [3 (ii) What two types of unemployment could be associated with positive developments in Malawi's agricultural sector and how? [3 (b) Assume that in 2015 the natural rate of unemployment in Malawi was 16.2% and the actual rate of unemployment is 21.6% while full employment real GDP was K998 billion. Use Okun's law to determine Malawi's real output. (c) At the end of Malawi's previous fiscal year, annual rate of inflation was 14.7% and Hiroko's annual salary of K560,000 was increased by 15%. By what percentage did Hiroko's real salary change? (d) Using a well-labelled graph, explain why Malawi's agro-based economy seems to experience both higher rates of inflation and unemployment, respectively. [5 (e) Briefly, explain the main criticisms levelled against the Laffer curve? [3 marks] ANSWERS 2. Unemployment and inflation are labeled as the twin problems of the economy that arise from economic instability. (a) Assume that total population of a landlocked country X is 8,250,000; population under 16 years of age or institutionalized is 1,400,000; population not in the labour force is 1,650,000; population unemployed is 550,000; part- time workers looking for full-time jobs are 155,000. (i) Calculate the actual unemployment rate in the country X? marks] [3 (ii) What two types of unemployment could be associated with positive developments in Malawi's agricultural sector and how? [3 (b) Assume that in 2015 the natural rate of unemployment in Malawi was 16.2% and the actual rate of unemployment is 21.6% while full employment real GDP was K998 billion. Use Okun's law to determine Malawi's real output. (c) At the end of Malawi's previous fiscal year, annual rate of inflation was 14.7% and Hiroko's annual salary of K560,000 was increased by 15%. By what percentage did Hiroko's real salary change? (d) Using a well-labelled graph, explain why Malawi's agro-based economy seems to experience both higher rates of inflation and unemployment, respectively. [5 (e) Briefly, explain the main criticisms levelled against the Laffer curve? [3 marks] ANSWERS

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