Q1) Identify whether there is likely an increase or decrease in measured Australian GDP in the following scenarios, and discuss whether GDP is a 'good' measure of progress in each case:

(i)a large increase in the proportion of young people volunteering (i.e. spending quality time, unpaid) with the elderly;

(ii)a sharp rise in traffic congestion and the frequency of vehicle accidents.

Question 2: Unemployment and the Application of Basic AD/AS Model to Fiscal Policy.

Currently in Latin America's biggest economy, the number of unemployed persons in Brazil is around 11.9 million. The following are based on the data showing the state of the Brazilian economy in 2019-20:

Unemployment rate = 11.2%

Underemployment rate = 24.6%

Real GDP growth rate=0.5%

a.What is the 'underutilisation rate'? Describe how the 'underutilisation rate' is a more effective measure of underemployment in the Brazilian economy than the 'unemployment rate'.

b.Assume that a real GDP per capita growth rate of 3.5% and a natural unemployment rate of 6.0% correspond to the 'bliss point', i.e. the long run, full-employment GDP equilibrium in Brazil. Use a well-labelled AD/AS diagram to show the position of this economy in 2020. Explain how the government can use expansionary fiscal policy to move the economy back to the long run, full-employment GDP equilibrium. Draw the AD curve shift(s) associated with this policy on your diagram.