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May 25, 2019, 11:19:04 am

Author Topic: Effect of increased Labour Force Participation Rate on key Economic Variables  (Read 142 times)  Share 

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Seamus Wong

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Hello,

Could anyone else answer the following question so that I can see how others approach these sorts of questions?
Here is the question:
B) Explain how an increase in the labour force participation rate would likely affect economic activity and other domestic macroeconomic economic variables:

Here's my answer for comparison with all of your answers. Let me know if I'm missing anything important or if the structure could be improved.

This increase in the number of individuals who are either actively seeking employment or currently in paid job would result in a greater quantity of labour resources available for firms to utilise in production. This therefore increases the productive capacity of a nation and their ability to expand operations. The expansion of operations thus results in rising levels of production, increasing GDP. The rise in production would increase the demand from firms for resources, including labour, which in-turn reduces the level of cyclical unemployment. Due to the more favourable AS-side condition, firms are capable of supplying a greater quantity of goods and services at given prices, thus reducing cost-inflation, boosting both material and non-material living standards.


Thanks
« Last Edit: April 16, 2019, 12:35:53 pm by Seamus Wong »

Chelsea f.c.

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So the increase in the participation rate may lead to more competition in jobs market decreasing wages and inflation thus shifting supply curve to the right (higher output for each given level of inflation) leading to higher output.
Bachelor of Commerce (Honours) Finance - UoM - 2019
Bachelor of Commerce - Economics and Finance - UoM - 2015 - 2018
Diploma in Mathematical Sciences - Statistics and Stochastic Processes - UoM - 2015 - 2018

khai.ling

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I think the overall content in your answer is good, but there are some small things you could do to improve it:
  • Instead of just saying that higher productive capacity results in higher GDP, mention that it is an increase in AS
  • Instead of just saying that firms would increase demand for labour, use the keyword "derived demand"
  • Once again, instead of just "favourable AS-side condition", be clear that you mean a shift to the right of the AS curve
  • Mention how lower levels of inflation improve living standards
In case any of that was unclear, I've edited your response with my advice so you can better see what I mean:

This increase in the number of individuals who are either actively seeking employment or currently in a paid job would result in a greater quantity of labour resources available for firms to utilise in production. This therefore increases the productive capacity of a nation and their ability to expand operations. The expansion of operations thus results in an increase in Aggregate Supply, which would increase GDP. The rise in production would increase the derived demand from firms for resources, including labour, which in-turn reduces the level of cyclical unemployment. Due to Aggregate Supply being shifted to the right, firms are capable of supplying a greater quantity of goods and services at given prices, thus reducing cost-inflation. This means that the purchasing power of our currency is maintained, allowing households to access more goods and services, thus boosting material living standards.


This kind of question would also be perfect for including a graph - you could show the increase in AS and the new equilibrium at a higher GDP with lower price level, and you could even show an increase in demand in the labour market when you talk about unemployment - but maybe that's overkill ahahahaha

I know this was posted a while back, but I hope this was helpful!!

2016-2017: VCE (ATAR: 99.95; UMAT: 99)
2018-2020: Bachelor of Commerce (Actuarial Studies) @UniMelb

let's yeet this wheat

Seamus Wong

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I think the overall content in your answer is good, but there are some small things you could do to improve it:
  • Instead of just saying that higher productive capacity results in higher GDP, mention that it is an increase in AS
  • Instead of just saying that firms would increase demand for labour, use the keyword "derived demand"
  • Once again, instead of just "favourable AS-side condition", be clear that you mean a shift to the right of the AS curve
  • Mention how lower levels of inflation improve living standards
In case any of that was unclear, I've edited your response with my advice so you can better see what I mean:

This increase in the number of individuals who are either actively seeking employment or currently in a paid job would result in a greater quantity of labour resources available for firms to utilise in production. This therefore increases the productive capacity of a nation and their ability to expand operations. The expansion of operations thus results in an increase in Aggregate Supply, which would increase GDP. The rise in production would increase the derived demand from firms for resources, including labour, which in-turn reduces the level of cyclical unemployment. Due to Aggregate Supply being shifted to the right, firms are capable of supplying a greater quantity of goods and services at given prices, thus reducing cost-inflation. This means that the purchasing power of our currency is maintained, allowing households to access more goods and services, thus boosting material living standards.


This kind of question would also be perfect for including a graph - you could show the increase in AS and the new equilibrium at a higher GDP with lower price level, and you could even show an increase in demand in the labour market when you talk about unemployment - but maybe that's overkill ahahahaha

I know this was posted a while back, but I hope this was helpful!!

Thank you for the help, I really appreciate it. I will definitely take those points on board. :)