aims of macroeconomic policy

Question 1

What are the four main supply-side factors that policymakers can target in order to raise the “potential output/ income” of an economy? (4 marks). Provide a recent policy example for Australia. (1 mark)

Answer 1

1. population 2. labour force participation 3. productivity 4. politics / policy reforms

E.G. NBN - productivity

Question 2

Calculate the Australian output gap from the following detail:
Australian actual GDP totaled $1650 bn in real terms in Mar 2017, a 1.5% increase from a year earlier. Statistical methods infer the Australian economies potential GDP in Mar 2017 was $1700 bn, a 2.5% increase from a year earlier. Express the output gap as a fraction. (Show your workings/calculation.) (4 marks) In March 2017, would you expect Australia’s unemployment rate to be higher or lower than “normal” (or the NAIRU)? (1 mark).

Answer 2

1650/1700 but do both years

Higher unemployment as below potential

Question 3

Draw a simple chart that shows the aims of monetary policy are to achieve both internal and external balance (3 marks). How do we judge internal balance and external balance (2 marks).

Answer 3

internal balance: inflation and unemployment low.

external balance: balance of payments low