MACROECONOMICS DATA

ANALYSIS 2.2

S3695732- NGUYEN HOANG ANH THI

S3698196- TO TRAN LINH NGA
s3697383- PETER KIM
s3694563- YELIM BYEON
Question 1:
a)

Figure 1: chart describes unemployment rate trend of Indonesia and Korea

Figure 2: chart describes GDP growth rate trend of Indonesia and Korea

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 Figure 3: chart describes inflation rate trend of Indonesia and Korea
b)

According to table 1, South Korea has significantly higher per capita compared to
Indonesia’s GDP per capita. Specifically, in 2016, South Korea’s GDP per capita is 27538.8061
while Indonesia’s GDP per capita is 3570.2949. However, when it comes to economic growth
rate, Indonesia’s is higher than South Korea’s. Even during the 2008 financial crisis, GDP

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growth rate of South Korea decreases incredibly from 5.46% to 2.83%, meanwhile Indonesia
GDP growth rate decreased from 6.35% to 6.01%. South Korea averagely keeps GDP growth
rate at 3.33% while Indonesia averagely keeps it at 5.59%. Therefore, South Korea has high
GDP per capita, but growth rate is low. On the other hand, Indonesia has a low GDP per capita,
but it has a high growth rate, so this country has a potential for development.

According to Sugandi (Senior economist at SKL World Competitiveness Institute

(SIGC)), household consumption is the most important key engine. Indonesia has a population of
roughly 260 million people, ranking 4th in the world and ranking 1st in Southeast Asia. It also
has the most attractive population structure in the consumer market. On the supply side, the
manufacturing sector, agriculture and trade will contribute significantly to the Indonesian
economy. Indonesia is well known of having plentiful natural resources and the agricultural
sector is still Indonesia's largest employment provider with 38.3 million people. More details
can be seen when looking at factors of production.

 Labor:
Labor force participation rate is 69.02% and the working age population rate is 67.97%,
respectively, indicating an attractive population structure in terms of production and
consumption. Therefore, the core of the Indonesian consumer market is young consumers. The
proportion of elderly people is only 7.01%, so the rate of aging is quite slow. This proves that
Indonesia has a potential young population.

 Natural Resources:
Indonesia also has the advantage of natural resources. Indonesia is the world's largest exporter of
steam coal, refined tin and nickel ore exporter. It is also a leading exporter of gold, bauxite lead,
zinc and copper.

 Human Capital:
Despite recent economic growth and considerable demographic advantages, Indonesia faces
considerable difficulty in educating a large population. According to Asia Sentinel, only 7%

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graduate from college. In fact, 42% graduated only from elementary schools ending at the age of
12, and the remaining 26% graduated from a middle school, usually ending at the age of 15.
Human capital is the most important part of the knowledge-based economy. The success of a
nation in today's economy depends on how many skilled professionals are in the country.
Countries with high human capital have high economic growth rates and rapid technological
development. Therefore, lack of human capital is the weakest point in Indonesia. Lack of human
capital can be enough obstacles to economic growth, even though Indonesia has better condition
of other factors of production compared to neighboring countries. Therefore, the government
implements policies for human capital.

 Policies:
Tax Amnesty Program:
Since June 2016 to March 2017, Indonesia government implemented Tax Amnesty Program in
order to promote infrastructure spending and growth. According to the Wikipedia, “Tax amnesty
is a limited-time opportunity for a specified group of taxpayers to pay a defined amount, in
exchange for forgiveness of a tax liability (including interest and penalties) relating to a previous
tax period or periods and without fear of criminal prosecution.” This program, which was
considered successful, involved approximately 972,000 taxpayers participated, and 80% of them
were individuals. Taxpayers reported assets worth more than IDR 4,800 trillion. The cumulative
amount of compensation reached IDR 114 trillion which is 0.9% of gross domestic product.

Figure 4: AS-AD graph for tax amnesty program of Indonesia

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 Tax Amnesty Program is increasing revenue of government budget. Higher government
income which is tax is equals to the less government spending. Therefore, aggregate demand
shifts to the left.

Micro Credit Program:

This program is to provide low cost microloans to farmers and small business owners to
encourage economic growth by investing capital into communities which is lack of collateral
required by conventional banks. Therefore, The Indonesian government aims to provide financial
facilities to micro enterprises through this program by provide equal and easy access in financing
for micro-enterprises. According to the report, “The maximum cap of financing is only IDR10
million with term of financing of 48 months.”

Figure 5: AS-AD graph for Macro credit program of Indonesia

Government spending increases in order to support micro enterprises. GDP is sum of

consumption, investment, government spending and NX. Therefore, due to increasing
government spending, GDP is increased, and aggregate demand shifts to the right.

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c)

Figure 5: chart describes trends of Indonesia’s unemployment rate and GDP growth

Figure 6: chart describes trends of Korea’s unemployment rate and GDP growth

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 Based on figure 5, Indonesia’s unemployment rate is a downward trend and economic
growth is a relatively unstable trend. The country’s unemployment rate declines from 2007 to
2014, then starts to increase slowly in 2015, and drops down again in 2016. Meanwhile, the GDP
growth decreases gradually from 2007 to 2008, then it drops heavily in 2009 due to the financial
crisis. After the financial crisis, Indonesia’s GDP growth starts to rise again in 2010 and stably
falls from 2011 till now. From 2009 to 2010, GDP growth increases greatly from 4.63 to 6.22
and unemployment rate decreases 6.1 to 5.6. Another period that needs to be considered is 2015,
when GDP growth rate declines and unemployment rate rises. It can be interpreted that there is a
negative relationship between these two variables. As the GDP growth rate of Indonesia
increases, the unemployment rate tends to decrease.

From what we see in figure 6, Korea’s unemployment rate is quite stable and economic
growth is very fluctuated. The country’s GDP growth rate declines heavily from 2007 to 2009
also due to the financial crisis, then it increases strongly in 2010, and drops severely again in
2011 and 2012. From 2012 till now, Korea’s GDP growth fluctuates lightly. Since
unemployment rate of this country is stable and GDP growth rate is very varied, it can be
interpreted that the change in economic growth does not have a great impact on unemployment
rate. However, Korea’s GDP growth rate declines in 2009 and 2015, meanwhile its
unemployment rate increases, which indicates a slightly negative relationship between the two
variables. Therefore, the relationship between economic growth and unemployment rate of
Korea is not a strong relationship.

Indonesia South Korea

Mean Unemployment Rate 5.4 3.4

Median Unemployment Rate 4.9 3.5

Mode Unemployment Rate 4.5 3.2
Estimated Natural Unemployment Rate 4.9 3.4

Table 3: Estimated natural rate of unemployment in Indonesia and Korea

According to table 3, the average unemployment rate of Indonesia is 5.4, the median is
4.9, and the mode is 4.5. Therefore, the estimated natural unemployment rate of this country is

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4.9. The average unemployment rate of Korea is 3.4, the median is 3.5, and the mode is 3.2.
Therefore, the estimated natural rate of unemployment of this country is 3.4.

Indonesia’s highest unemployment rate from 2007 to 2017 is 8.1 and Korea’s highest
unemployment rate during the same period is 3.7.

Since the natural unemployment rate includes structural, frictional, and classical
unemployment, therefore, we can calculate the cyclical unemployment rate in the peak year by
subtracting the natural unemployment rate from the peak year unemployment rate.

 Indonesia’s cyclical unemployment rate = 8.1 – 4.9 = 3.2

 Korea’s cyclical unemployment rate = 3.7 – 3.4 = 0.3

From the given data, Indonesia has higher rate of unemployment than Korea. Both
natural unemployment rate and cyclical unemployment rate of Indonesia is higher than Korea’s.
Korea’s cyclical rate of unemployment rate is very low, which indicates that the unemployment
rate of this country is not mainly impacted by the economy. Korea’s unemployment rate is high
mainly due to structural, frictional, and classical unemployment. Meanwhile, Indonesia’s cyclical
rate of unemployment and natural unemployment rate are relatively high, which means that a
change in the economy can affect the unemployment rate greatly and there would be still be a
quite high unemployment rate even when there is no change in the economy.

Unemployment has many different types:

 Cyclical unemployment: due to the changes in economy activities.

 Natural unemployment: includes structural, frictional, and classical unemployment.
Every country has a natural rate of unemployment.
 Structural unemployment: due to the differences between the skills that firms or
businesses require and the skills that workers obtain.
 Frictional unemployment: due to temporary period that workers are laid off or switching
jobs.
 Classical unemployment: due to the real wage level is higher than the wage that
employers are willing to pay for the workers.

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 According to Nagib and Ngadi (2008), “Indonesia is a labour surplus country, due to
limited productive working opportunities can be created by slower economic growth against the
growing of new entrance in the labour market.” The underemployment issue in this country is
caused by “a high growth of labour force but majority of the labour force were graduated from
elementary school or below.” This is one example of structural unemployment in Indonesia.
Because the education level of a large population in Indonesia is relatively low and unadaptable
to the skills that employers require, it causes structural unemployment for a long period of time.

In recent years, Korea has faced a rise in unemployment rate due to the slow down of the
economy. “For many Korean youth, it's the dream of a job-for-life with a big conglomerate — or
nothing at all. As the economy slows, there aren't enough jobs for all the college graduates here”
stated NPR.org. (2017). Since Korea has many big conglomerates like LG, Samsung, CJ... they
tend to take over the economy and the market. Therefore, when economy is not performing well,
the unemployment rate would rise. This is one example of cyclical unemployment in Korea.

Question 2:

a)

Figure 7: chart describes inflation rate trend of Indonesia and Korea

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 As given in figure 7, inflation rate of both countries reached its peak in 2008, noticeably
is Indonesia with a rate of 9,78 which was double comparing to Korea’s 4,67. To explain this
phenomenon, there is a world-class problem had emerged during 2007-2008 which is called
Financial Crisis affected the economies of these two countries. In detail, not only did Korea and
Indonesia suffered from this significant issue, “around the world stock markets have fallen, large
financial institutions have collapsed or been bought out, and governments in even the wealthiest
nations have had to come up with rescue packages to bail out their financial systems.”
(Globalissues.org, 2008). However, Indonesia was one of the three most affected Southeast
Asian economies by the crisis.

To make clear about the burst in inflation rate of Indonesia in 2008, we must dig deeper
into what and how factors of this global issue had caused the stagnation of Indonesia economy
system. According to the articles and researches, this global issue had affected Indonesia
economic structure in many means, for instance, it witnessed a fall in product consumption as
well as banking shortage in capital market which had huge effects on the firms when most of
them depended heavily on bank loans. This phenomenon directly increased interest rate which
consequently decreased firms’ investment rate. Moreover, stock market also had to be postponed
in order to prevent the economic system from worse situation, especially, the exporting sector
and commodity extracting industries were the most severely affected. Hence, these factors had
led to the fact that “inflation in Indonesia is not only influenced by demand pull, but also cost
push factors” (Bi.go.id, 2009) as the global prices had made the overall product cost increased;
government expenditure and consumer confidence also rose to significant level; exporting
demand became more and more higher while the global need was decreased since Financial
crisis. The above factors caused the higher in prices and redundancy in goods, the economy and
finances in Indonesia market became stagnant, consequently, increase poverty rate and brought
inflation rate to emerging level.

In 2009, there was a dramatic fall to 4,81 due to practical solutions of Indonesia
government: operated several campaigns on social protection mechanisms; in term of domestic
sector, they imposed fiscal stimulus package by fixing the tax law in order to stimulate and
maintain the economy balance; the Sentral Republik Indonesia bank had fast responses that was
a “coordination of fiscal and monetary policy also takes place in the joint formulation of the

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State Budget Macro Assumptions deliberated with the Indonesian Parliament.” (Bi.go.id, 2009).
Therefore, Indonesia had successfully mitigated the problems of Financial crisis as they achieved
positive result in 2010 with a decrease in inflation rate.

b) In the 1980s, in Romania communist party used Kent cigarettes to serve as a medium of
exchange. So, can we call cigarette money? Money can be in any type of format if everyone
agrees to use for exchange of goods and services. However, there are three basic conditions to
fulfill to call itself money- medium of exchange, a unit of account, and store value. We will
analyze if cryptocurrency, like bitcoin fulfills three conditions to be able to call money.

Cryptocurrency is on par with fiat currency. If you are a geek, you can easily recognize
websites, especially in deep-webs, it is the common currency to exchange products and services.
However, some people might disagree that cryptocurrency is money because it is not widely
spread in society and not commonly used for exchange purpose in real world. Out of 500 top
merchandise in America, only 3 corporates are accepting cryptocurrencies for exchange. The
intrinsic value of Bitcoin crucially depends on the fact that it attracts large-scale market
operators and gains legitimacy (Bianchi, 2018). Therefore, it is bit unclear to call cryptocurrency
as money at current stage.

Can cryptocurrency meet the second condition of a unit of account? The answer is yes.
One unit of digital currency dependably has a similar estimation of another unit of a similar
measure of that same cryptographic money.

The last condition we need to discuss is a store of value. So what is an attractive store of
value? An attractive store of value is scarce, durable, and maintains a stable price over time.
Bitcoin is currently lacking in all these aspects (Cookson, 2018). This is where question arises
whether bitcoin can be called money or not. Many experts state that it seems odd to even discuss
about SOV because bitcoin was originally made for p2p electronic cash system. The storage of
value means simply trust. You trust gold to remain generally predictable in cost because it only
has limited supply. On January 2018, bitcoin sat on $9065, tremendous down from all time
highest of $19,343 on December, 2017.

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 To conclude, even though many people argue that bitcoin can be called money, I strongly
disagree with them. Order to call something money, people need to acknowledge and agree to
use it for exchange, but it is only actively used in the cyber world. Also, it doesn’t meet the store
of value when bitcoin price fluctuates too frequently. Even though creator’s purpose was to use
as money, it is not meeting the basic three conditions at current stage. therefore, we will disagree
to call cryptocurrency a money.

References:

Asia Sentinel. (2018). Indonesia Seeks to Raise Human Capital - Asia Sentinel. [online]
Available at: https://www.asiasentinel.com/society/indonesia-raise-human-capital/ [Accessed 1
May 2018].

Investments, I. (2018). Household Consumption Remains Key Engine Economic Growth

Indonesia | Indonesia Investments. [online] Indonesia-investments.com. Available at:
https://www.indonesia-investments.com/news/todays-headlines/household-consumption-
remains-key-engine-economic-growth-indonesia/item7540? [Accessed 1 May 2018].

Bundesfinanzministerium.de. (2018). [online] Available at:

http://www.bundesfinanzministerium.de/Content/DE/Downloads/G20-
Dokumente/Hamburg_Wachstumsstrategien/IDN-Growth-
Strategy.pdf?__blob=publicationFile&v=3 [Accessed 1 May 2018].

En.wikipedia.org. (2018). Tax amnesty. [online] Available at:

https://en.wikipedia.org/wiki/Tax_amnesty [Accessed 1 May 2018].

Nagib, L. and Ngadi, N. (2008). CHALLENGES OF UNEMPLOYMENT IN INDONESIA:

TRENDS, ISSUES AND POLICIES. [online] Ejurnal.kependudukan.lipi.go.id. Available at:
http://ejurnal.kependudukan.lipi.go.id/index.php/jki/article/view/167 [Accessed 28 Apr. 2018].

NPR.org. (2017). South Korean Youth Struggle To Find Jobs After Years Of Studying For Tests.
[online] Available at: https://www.npr.org/sections/parallels/2017/05/28/530153288/south-
korean-youth-struggle-to-find-jobs-after-years-of-studying-for-tests [Accessed 28 Apr. 2018].

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The Korea Daily. (2017). Youth Unemployment in South Korea - The Korea Daily. [online]
Available at: http://www.koreadailyus.com/youth-unemployment-in-south-korea/ [Accessed 28
Apr. 2018].

Globalissues.org. (2008). Global Financial Crisis — Global Issues. [online] Available at:
http://www.globalissues.org/article/768/global-financial-crisis [Accessed 25 Apr. 2018].

Bi.go.id. (2009). Monetary and Fiscal Policy - Bank Sentral Republik Indonesia. [online]
Available at: https://www.bi.go.id/en/moneter/koordinasi-kebijakan/Contents/Default.aspx
[Accessed 27 Apr. 2018].

Cookson, R. (2018). Bitcoin analysis part 4: can it be a useful store of value?. [online] Medium.
Available at: https://medium.com/@robert.cookson/bitcoin-analysis-part-4-can-it-be-a-useful-
store-of-value-58dfd316b61c [Accessed 23 Apr. 2018].

Bianchi, D. (2018). Is Bitcoin evolving into a store of value?. [online] The Bankers. Available at:
http://www.thebanker.com/Transactions-Technology/Technology/Is-Bitcoin-evolving-into-a-
store-of-value?ct=true [Accessed 25 Apr. 2018].

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