Everything

Question 1

Draw and annotate the Aggregate Demand and Supply Model

Answer 1

Question 2

Explain the difference between Disposable Income and Discretionary Income

Answer 2

Disposable income is the total income after deductions such as taxation and expenditures on necessities such as housing, food. etc.

Discretionary income is the amount of income available after all necessities have been paid for that could be spent on desired items such as entertainment and vacations.

Question 3

What is the Transmission Mechanism and what/who can be affected by it?

Answer 3

It is the process through which MONETARY POLICY decisions affect an economy and its price level. This can be seen through varying levels of inflation, employment rates, exchange rates, and the supply of money.

Question 4

Why is Long Run Aggregate Supply straight and vertical?

Answer 4

Because the output cannot increase or decrease as it reflects full employment output and represents a time in which input/cost prices have adjusted to the changes in sale/price level.

Question 5

Why is Short Run Aggregate Supply diagonal?

Answer 5

Because it displays the positive relationship between the aggregate price level and amount of aggregate output supplied in an economy (if economy sell more they will produce more).

Question 6

Draw and annotate the Economic Cycle Model

Answer 6

Inflationary Gaps + Recessionary Gaps

2-3% Inflation is desired

Question 7

Draw and annotate the Production Possibility Curve Model

Answer 7

The outward shift can result from structural change - better technology

Question 8

How is GDP calculated

Answer 8

C+I+G+(X-M)

Question 9

What are the effects of an expansionary monetary policy?

Answer 9

A decrease in cash rates, which leads to decrease in interest rates set by banks. The supply of money is increased as banks are likely to lend out more. The AUD depreciates. Unemployment decreases as the stimulation of capital investments creates additional jobs in the economy.

Question 10

What are the effects of an contractionary monetary policy?

Answer 10

An increase in cash rates, which leads to an increase in interest rates set by banks. The supply of money is decreased as banks are less likely to lend out more. The AUD appreciates.Unemployment increases as little stimulation of capital investments reduces additional jobs in the economy.

Question 11

What are the effects of an expansionary fiscal policy?

Answer 11

Decreased taxation revenue increases aggegate demand as more have greater disposable income.

Question 12

What are the effects of an contractionary fiscal policy?

Answer 12

Increased taxation revenue decreases aggegate demand as more have lesser disposable income.

Question 13

What are some Macro-Economic Objectives?

Answer 13

Sustainable Economic Growth

Full employment,

Question 14

What is inflation targeting?

Answer 14

A central bank strategy of specifying an inflation rate as a goal and adjusting monetary policy to achieve that rate

Question 15

What are automatic stabilisers?

Answer 15

A mechanism that automatically increases spending or decreases taxes when the economy slows, and vice versa.

Acts to damp out fluctuations in real GDP.

Question 16

What is the current inflation rate, unemployment rate, and cash rate?

Answer 16

Inflation - 6.1%
Unemployment Rate - 3.5%
Cash Rate - 2.6%

Question 17

What are the four types of unemployment?

Answer 17

Frictional - It occurs when people voluntarily change jobs. You can’t just regain another job instantly.

Cyclical - The variation in the number of unemployed workers over the course of economic upturns and downturns, such as those related to changes in oil prices or COVID. Unemployment rises during recessionary periods and declines during periods of economic growth.

Structural - Technological changes can lead to unemployment among workers displaced from jobs that are no longer needed. Examples of such changes include the replacement of horse-drawn transport by automobiles and the automation of manufacturing,

Seasonal - Employment is dependent on the season such as farming or outback work

Question 18

How is the unemployment rate calculated and who is considered employed?

Answer 18

Unemployment Rate = (Unemployed/Labour Force) x 100

Workforce = 1HR PAID PER WEEK

Question 19

What are the types of Inflation and what do they mean?

Answer 19

Inflation - Rate of increase in price of a basket of goods and services
Deflation - Rate of decrease in price of a basket of goods and services
Hyper Inflation - Inflation occuring at a very high rate’
Stagflation - Persistent high inflation combined with high unemployment and stagnant demand in a country’s economy

Headline Inflation - The raw inflation figure reported through the Consumer Price Index
Underlying Inflation - Removes volatile items with high price fluctuation in the short run from the basket of goods used to measure inflation

Question 20

What are the different descriptors / economic indicators?

Answer 20

Leading - Points toward future events
Lagging - Confirms a pattern already in progress
Coincident - Occur in real-time and clarify the state of the economy

Question 21

Formula for Multiplier Effect

Answer 21

M = 1 / (1 - MPC)

Multiplier = 1 / (1 - Marginal Propensity to Consume)

E.g. M = 1 / (1 - 0.8)

Question 22

Draw and annotate the Phillips Curve model

Answer 22

Ensure you add percentages of inflation and unemployment along the axis

Question 23

What are some micro-economic policies?

Answer 23

Tariff control, subsidies, indirect taxes, competition policy, price controls, environmental policies and regulation.

Question 24

What is a fiscal policy?

Answer 24

The means by which a GOVERNMENT adjusts its SPENDING LEVELS and TAX RATES to monitor and influence a nation’s economy and their BUDGET DEFECIT

Question 25

What is a monetary policy?

Answer 25

A set of tools used by a nation’s CENTRAL BANK to control the overall MONEY SUPPLY and promote economic growth and employ strategies such as cash rate changes. These changes affect the COST OF BORROWING, which inversely impact those who save and those who spend depending on the rate set.

Question 26

Which policies impact the floating exchange rate and in what way?

Answer 26

The monetary policy impacts the exchange rate. The greater the cash rate / interest rate, the more the AUD appreciates.

Question 27

What are open market operations (OMO)?

Answer 27

The purchase and sale of securities in the open market by a central bank. This affects the supply of money in the economy.

Buying securities adds money to the system, lowers rates, makes loans easier to obtain, and increases economic activity.

Selling securities removes money from the system, raises rates, makes loans more expensive, and decreases economic activity.

Question 28

What market forces will impact the aggregate demand of an economy and shift the curve in which way?

Answer 28

The aggregate demand curve reacts to the price level and real GDP of an economy. Therefore, if any components of the GDP C+I+G+(X-M) are impacted there will likely be a shift in either direction.

If tax cuts or higher employment occured, there would be higher consumption rates as more had more disposable income. This would increase the real GDP of the economy independent of the price level, shifiting the demand curve to the right and vice versa.

Or if there is an increase in net exports as more desire Australian products, the real GDP would increase independent of the price level of the economy, shifting the demand curve to the right.

Question 29

What market forces will impact the short run aggregate supply of an economy and shift the curve in which way?

Answer 29

The most important factor shifting the SRAS curve is productivity growth. Productivity—in economic terms—is how much output can be produced with a given quantity of labor

A higher level of productivity shifts the SRAS curve to the right because with improved productivity, firms can produce a greater quantity of output at every price level.

A lower level of productivity shifts the SRAS curve to the left because with improved productivity, firms can produce a greater quantity of output at every price level.