Macro

Question 1

Mon - rebal

Answer 1

• TOT decrease to 88
• Sign. reduction in housing prices
• Loosening of cash rate from 4.75% to new record low of 1% in June 2019
• Limited ability to encourage further growth with highly indebted households
• Supported growth whilst fiscal policy was pro-cyclical and mildly contractionary
• Non-mining business investment very slow to respond

Question 2

Fiscal - rebal

Answer 2

• contractionary fiscal policy to continue to consolidate previous deficit.
• The 2015-16 budget was forecast based on wages growth of 2.5% however actual wage growth was just 1.9%. This combined with lower commodity prices meant revenue was lower than expected.
• During 2014-15 Joe Hockey slashed spending to reduce the deficit without increasing taxes, this meant cutting foreign aid, family tax benefits, senior card benefits, and deregulating university fees which increased HECS debt

Question 3

Mon - COVID

Answer 3

• limited monetary space to assist
• Loosening of the cash rate at 0.25% and policy interest rate corridor to 0.75% - 0.1%
• Emergency measures to limit reduction in C and I by conventional and unconventional monetary policy including quantitative easing and loan facilities to banks

Question 4

Fiscal - COVID

Answer 4

• The first package announced on the 12th of march totals to $17.6 billion
  - cash flow assistance to SME
  - support for the most severely affected sectors and regions
  - and household stimulus payments
  - and secondarily to boosting investment though supporting business investment.
• The second package announced on 22nd of march $189 billion
  - new Jobseeker payments
  - earlier access to superannuation
  - reducing the deeming rate (centrelink)
  - more cash flow for employees and more payments to pensioners
• The third package
  - new job-keeper payment
  - stimulus towards airlines and airports ($750 million)
  - health care sector support
  - unemployment levels has been dramatically reduced from the job keeper initiative, currently at 6.2% much lower than underutilisation rates increasing to 19.9%.
• The homebuilder scheme was initiated on 4th of June 2020 and will end on the 31st December 2020, it includes a grant of $25,000 to middle-income earners ($125,000 for single, and $200,000 for double) who want to renovate or build a home, however extremely specific requirements for eligibility rules.

Question 5

Setup COVID

Answer 5

• recession of unprecedented levels with severe restrictions on economic activity (schools and businesses closing)
• GWP contracting by 3% which has in turn softened Australia’s aggregate demand across household consumption, business investment and exports.

Question 6

Setup Rebal

Answer 6

The rebalancing period (2012-19) was characterised by mining investments steady decline and decreasing commodity prices. This decrease in commodity prices has significant effects on government revenue, as small margins made large differences in taxes.

As ‘I’ reduces as mining investment boom unwinds, growth slows, transition to housing construction growth, infrastructure and increase in education and tourism with lower AUD

Question 7

MON THEORY setup

Answer 7

• form of macroeconomic policy done be RBA
• takes action to smooth effects of fluctuations in the business cycle and influence the level of economic activity, employment and prices.
• Monetary policy affects aggregate demand through domestic interest rates by changing the “cash-rate”
• The RBA conducts DMOs to influence the desired cash-rate.
• The RBA can tighten or loosen monetary policy.
• phases

Question 8

FISCAL THEORY

Answer 8

• undertaken by treasurer
• make decicsions on government revenue and expenditure
• sustainable economic growth, full employment, income distribution and environmental sustainability
• Non-discretionary refers to the automatic stabilisers which are a progressive income tax system and unemployment benefits which act counter-cyclically to the business cycle
• Discretionary fiscal policy is the actual change in the value and composition of government spending and taxation as a means to shift AD
• Each fiscal budget leads to an outcome
  - surplus (taxation > spending)
  - deficit (spending < taxation)
  - balanced (taxation = spending)
• stance – the composition of two fiscal outcomes
  expansionary (reduced surplus, increased deficit), contractionary (reduced deficit, increased surplus) and neutral (no change). Through both discretionary and non-discretionary Fiscal Policy, the Australian government has a significant impact on economic growth, price stability and full employment. Aggregate demand and aggregate supply graph

Question 9

THEORY INTRO

Answer 9

Macroeconomic policy
- Rephrase question
- macroeconomic polices work countercyclical to the business cycle in an effort to smooth out any fluctuations.
- Mention phases
ADAS graph

Question 10

DMO’s:

Answer 10

• Domestic market operations (DMOs) refers to the process by which the RBA influences domestic interest rates.
• DMOs involves the RBA setting the cash rate through the secondary trading of Commonwealth Government Securities to increase or decrease funds in Bank’s
  exchange settlement accounts (ESA) over the short-term overnight money market (STMM)
• The RBA also uses a cash rate corridor system through giving interest to banks from their ESA funds that is 0.25% below the cash-rate and providing loans that are 0.25% above the cash rate
• graph

Question 11

Cash rate

Answer 11

Cash rate:
- The cash-rate refers to the interest rate in the overnight money market (where funds are borrowed for only a day). On the first Tuesday of every month the RBA comes together to decide on the new cash-rate target.

Question 12

Tightening and Loosening:

Answer 12

• Tightening means to increase chash rate vice versa
• “transmission mechanism”, time lag of somewhere between 6-18 months before the full impact of interest rate changes are felt in the economy.