Question

Read the following excerpt and answer question Robots’ rise to spark jobs crisis, says Seek chief A key player in the Australian jobs market [Seek chief executive Andrew Bassat] has warned that the rate at which robots replace humans in the workplace will spark an employment crisis and has urged companies and governments to urgently confront the issue. In a recent report, consulting giant McKinsey assessed more than 800 jobs to see how robots could replace people. It found the accommodation and food services sectors were the most ripe for automation, with machines able to perform about 75 per cent of the work in those sectors. In the resources sector, one of Australia’s biggest employers, it found robots could perform more than 60 per cent of the work. In another report, PwC claimed that automated bots in the future could take 38 per cent of jobs in the US, 30 per cent in Britain, 35 per cent in Germany and 21 per cent in Japan. The firm said the jobs most likely to be taken by robots would be in the transportation and storage sectors, as well as manufacturing and retail. But it said the productivity benefits could lead to higher salaries being paid to the remaining human workers. Mr Bassat said “Government also has a big role to play in closing the gap between supply and demand with the new jobs. Directing people to education and training that will lead to available jobs (where in some cases there are skill shortages), not to places where jobs are fast disappearing.’’ Author: Damon Kitney, Victorian Business Editor Source: The Australian (July 04, 2017) Required:

A) What are the likely effects of a change from human to robot labour on Aggregate Demand, Short Run Aggregate Supply and Long Run Aggregate Supply? What are the effects on GDP, employment and price level. Assume that robots are more productive and cheaper than human workers, and can be used in most sectors of the economy. Also, assume that, previously, the Australian economy was in short- and long-run macroeconomic equilibrium, with actual real GDP being equal to its potential level.

B) Describe how the ABS measures GDP using the income method.

C) Explain how the components of income that add to final GDP might change.

Answer 1

When technological advances come into picture, there is structural unemployment being witnessed which creates job losses and layoffs and simultaneously get replaced by robots which mushrooms the productivity and hence the short run aggregate supply increases however the long run aggregate supply corrects itself due to maturity in technology. Now when the productivity rises, the overall pproduction rises which yields higher profits and overall sales and so does consumption rises in economy due to higher availability and affordability of goods.

Thus the aggregate demand rises which causes the Aggregate demand curve to shift rightwards and so does the real GDP rises above potential level. When GDp rises due to higher aggregate demand the inflation also rises however due to low cost robots the final prices gobdown cancelling the inflation rise.

• AbC uses income method of GDP calculations where in sum of factor incomes and factors of production are accounted to give total productive value of economic activity.
• Taxes, depreciation amd foreign factor payments change the final GDP as higher taxes and higher depreciation lower the income level while higher foreign factors increase forex reserves causing income to rise.