a.During the 2007-2008 Global Financial Crisis, unemployment rates in many countries were at very high levels. By 2010, several countries were showing signs of economic recovery. However, their rates of unemployment were remaining high, and in some countries, the rates of unemployment were continuing to rise further. Why would the rates of unemployment remain very high or rise even further, even when these economies had begun to grow again?

b.If the Australian government decided to eliminate unemployment benefit payments during the COVID pandemic, what would be the effect on real GDP? (Hint: use the components of aggregated demand to explain your answer).

c.As an economic consultant, you find it is difficult to monitor your workers and thus you a report in which you recommend to the firm's leadership team that the firm should raise employees' wages. One manager however makes the following argument: 'I think the wages we are paying are fine. As long as enough people are willing to work here at the wages we are currently paying, why should we raise them?' What argument can you put forward to justify that the firm should increase its wages? Under which economic condition (boom or sluggish) do you reckon you have a strong case, and why?