Question

Question 4

1).Suppose you have $200,000 in a bank term account. You earn 5% interest per annum from this account. You anticipate that the inflation rate will be 4% during the year. However, the actual inflation rate for the year is 6%.

Calculate the impact of inflation on the bank term deposit you have and examine the effects of inflation in your city of residence with attention to food and accommodation expenses.

2) The Australian Bureau of Statistics (ABS) reported in May 2017 that the civilian population in Australia over 15 years of age was 20.8 million.

Of this population of 20.8 million Australians, 13.5 million were employed and 0.7 million were unemployed.

Calculate Australia’s labor force and the number of people in the civilian population who were not in the labor force? Also, with examples examine the causes of structural unemployment in Australia

Answer 1

Hi;

Hope you are doing well!

4). Question:

Answer:

Introduction:

I want to discuss about some vital terminologies before the answering of these question. It will help you to understand the answers.

Inflation Rate: In economics, the inflation rate is a measurement of inflation, the rate of increase of a price index. It is the percentage rate of change in prices level over time.

Nominal Return: The nominal rate of return is the amount of money generated by an investment before factoring in expenses such as taxes, investment fees, and inflation.

Real Return: The real return is simply the return an investor receives after the rate of inflation is taken into account.

Real Return = Nominal Return - Inflation.

1). Answer:

As per the question:

Deposit Amount = $200,000

Interest Rate = 5% ( Nominal return)

Expected Inflation rate = 4%

Actual inflation rate = 6%

Real interest rate (at 4% inflation rate) = 5 - 4 = 1%

Real interest rate (at 6% inflation rate) = 5 - 6 = -1%

So, in case of expected inflation rate you are really earning only 1% return and in case of actual interest rate you are Losing your money actually.

In my country nominal interest rate is 3.5% and average inflation rate is 5% so, the real income of the people of my city is negative and their income is insufficient to fulfill their need of food and Accommodation. Because of higher inflation rate they are falling in poverty and feeling stress. They are worry about their future goals and lives. They are not able to maintain a good standard of live and the gap of income between poor and rich people is spreading on regular basis.

2). Answer:

According to the question:

Population of Australia over 15 years of age (May 2017) = 20.8 millions.

And of this population of 20.8 million Australians, 13.5 million were employed and 0.7 million were unemployed.

Calculate Australia’s labor force =

LFPR = (Labor Force / Total adult population) * 100

where the Labor Force = Employed + Unemployed

= {(13.5 millions + 0.7 millions)/20.8 millions} * 100

= (14.2/20.8) * 100

Australia’s labor force = 0.6826 * 100 = 68.26%

Civilian population who were not in the labor force =

20.8 millions - 14.2 millions

Civilian population who were not in the labor force = 6.6 millions.

Causes of structural unemployment in Australia:

Structural unemployment:

Structural unemployment is a form of involuntary unemployment caused by a mismatch between the skills that workers in the economy can offer, and the skills demanded of workers by employers (also known as the skills gap).

Causes of Structural unemployment i Australia- Technological changes, competition, education and training,  relocation subsidies, decrease or remove unemployment benefits (least reason) etc

Technological changes: Technology revaluation like, automation, AI, digitalization etc. in Australia is the biggest reason of Structural unemployment because it replace the unskilled or semi-skilled worker with highly skilled workers.

Competition: Australia is facing the competition because of globalization, free market policy and free trade. The biggest competitors are- USA, EU, Japan, China etc.

Education and training: Australia is adopting new technologies and also prepare the training and educational Institutions accordingly but it is a long process and will take the time to fulfill the skills gap.

Thank You