Question

Suppose that a consulting firm has generated the following information about the economy of Ģtowxille: (1) The current employment in export industries is 50,000: (i) The current total employment in the city is 150,000, Џії) Export employment is expected to grow by 10,000 iobs. a. Is there enough information to accurately predict the effect of the increase in export employment on total employment? b. If you have enough information, predict the employment effect and illustrate your answer with a graph. c. If there is insufficient information, proceed with the analysis as far as you can and list the additional information you need to complete the analysis. Illustrate your answer with a graph.

Answer 1

Current employment = 150000

Current employment in exports = 50000

Export employment is expected to grow by = 10000

Ans 1 No, it cannot be said that it is complete information to calculate the net increase in export employment level on total current employment level. There can be two cases,

(1) It says export employment increases and current employment also increases by 10000.

(2) Export employment increases but current employment does not increase and stay at the same level.

So there would be two different answers.

Ans 2 As we do not have enough information, this question cannot be answered.

Ans 3 The additional information which can be putted down here is that giving us the information about whether current employment level is increased by 10000 or not. Analyze both the cases :

(1) Current employment level increases by 10000. It means the increased export employment level have 6.25% (10000/160000) change effect on total employment level.

(2) Current employment level remains the same and the increased export employment level now have 6.66% (10000/150000), effect on total employment level.

These two cases says that when there is export employment growth and not current employment growth, aggregate demand would have risen more faster than the other case, because

AD = G + I + C + Net Exports

When export employment rises, net exports must have risen, AD must have risen from Case 2 than Case 1 because in case 2 export employment level have risen but not total employment level, the percentage share of export employment have increased in Case 2.

AE u)

AD have increased and real GDP have also increased from A to B.