Question

Q2. Provide for a contemporary situation to illustrate the below situation

Jamilah is a particularly productive waitress and she is often employed given her excellence. Yet for the past 3 months she has found herself unemployed despite still being a very efficient waitress. What does Jamilah’s situation tell you about Australia’s output gap at present, and what does this indicate with respect to the relationship between the actual (or current) unemployment rate and the full‐ employment rate (i.e. natural rate of unemployment)?

Answer 1

Question 2

Jamilah is a productive waitress and instead of her efficiency, she is unemployed.

This means that Jamilah is not unemployed due to technical or skill issues. So, she is not structurally unemployed.

Secondly, Jamilah has not left the job to search for another or has freshly entered the labor force for job. So, she is also not frictionally unemployed.

So, it can be construed that due to economic downturn, Jamilah is finding it difficult to get a job.

Thus, Jamilah is cyclically unemployed.

When cyclical unemployment prevails in the economy negative output gap persists.

So, negative output gap or recessionary gap exist in Australia.

In case of recessionary gap, actual unemployment exceeds the natural rate of unemployment.

Thus, in Australia, actual unemployment rate exceeds the natural rate of unemployment.