Question

Answer each part by using well-labelled graphs for the IS-LM, WS-PS and AS-AD models:

a) Assume that Australian government has made it very difficult for refugees (who are prepared to work at lower wages) to obtain work permits to enter the workforce. Explain how natural rate of unemployment would change.

b) Assume that the RBA decided to increase its price target, analyse how the economy would adjust to a medium-run equilibrium.

c) Would your answer to (b) change if the economy was in a liquidity trap? Explain.

d) Suppose the RBA tries to persuade everyone that it is necessary that the Bank to decrease the cash rates. This would decrease people’s expectations of future interest rates. Explain what the effect would be today on equilibrium output.

Answer 1

(A)

• Australia s settlement services for refugees and migrants have evolved over the last 60 years from the provision of basic on-arrival accommodation and assistance, to more intensive support programs targeted at meeting the specific needs of humanitarian entrants.
• In recent years there has been an increased focus on how settlement and related services can contribute to community harmony and social cohesion.
• The current settlement services offered by the federal government include integrated support for humanitarian entrants, translating services, English language classes, and grants-based funding for projects to promote social cohesion and integration of migrant groups.
• There has been a recent focus in meeting the specific needs of humanitarian entrants from Africa, following increased community concern relating to the successful integration of these groups.
• An issue for the future will be how settlement and related services can be used to meet the needs of the large numbers of temporary migrants now entering Australia.
• Ensuring that temporary migrants settle well in Australia for the duration of their stay will help to alleviate concerns relating to temporary migration and social disharmony, and will allow Australia to gain the maximum economic and social benefit from temporary migrant worker programs.