Question

1. Why is the natural rate of unemployment not equal to zero?

(4 marks)

2. Please indicate the effect on the Malaysin Gross Domestic Product (GDP) and Gross National Product (GNP). Explain your answers.

1. Malaysian mining companies purchase German made trucks.

2. A Japanese company produces industrial chemicals in Melaka. Some of these chemicals are exported to other countries and some is sold within Malaysia.

3. Price of domestically produced industrial robots decreases.

                                                                                                                           (6 marks)

3. Suppose that the money saved in the bank by the households is channelled to finance investments by the firms. What would be the impact on the aggregate expenditures if marginal propensity to consume (MPC) increased from 0.65 to 0.8?

Answer 1

Answer to first question provided as per HOMEWORKLIB RULES :

1) Why is the natural rate of unemployment not equal to zero?

Answer : The natural rate of unemployment is the unemployment rate that exists even when economy is producing the full employment output . NRU is the unemployment rate during full-employment real output .

NRU = Frictional + Structural Unemployment ( Frictional unemployment is unemployment due to job search , structural is due to mismatch of skills )

Even when an economy is on the boundary of PPC or prodcuing fully efficient amount , this unemployment will be there . When on PPC , unemployment rate = NRU . So NRU is never equal to zero because its components are never zero . The cyclical unemployment affects the current unemployment rate which does not affect NRU .