Economics Questions Thread

[Jono_CP]

@Zeitegeist Means when the AUD falls, imports from overseas are more expensive

How so? I understand that exports can be purchased at a lower price, and are thus more attractive to purchase o/seas... Not sure about imports?

[abcdqdxD]

Because if imports say cost, $100. Suppose AUD in 2013 is 1:1 with the USD and in 2014 1 AUD only gives 0.9USD.

In 2013, it will cost you $100 AUD to buy the import. In 2014 it will cost you $111.11 AUD to buy the same import because you need more AUD to convert to the same amount of USD. Notice that imports are priced in foreign currencies, not AUD.

[Jono_CP]

What are government securities? Why does the RBA like to sell them when tighting monetary policy and why do firms find them attractive? And what does it mean when the rba buys back government securities?

[LazyZombie]

What are government securities? Why does the RBA like to sell them when tighting monetary policy and why do firms find them attractive? And what does it mean when the rba buys back government securities?

We don't need to know the specifics about government securities (I don't really understand this part of the course fully either), but they include government bonds, which are basically IOU's saying that the government will pay back whoever owns the security a certain amount of cash by a certain date. Banks find them attractive investments as the RBA sells the bonds at a lower price when they tighten monetary policy, and buys them back them at a higher price when they want to loosen the cash rate, in order to manipulate liquidity in the banks ESAs.

They're an attractive investment because they're relatively safe.

This was discussed back in august, but have monetary policy and budgetary policy settings been compatible or incompatible?
I would say that they are incompatible because budgetary policy is relatively contractionary while monetary policy is expansionary, but, could you argue that the contractionary budgetary policy allows monetary policy to play the main role in stabilising AD, without significant inflationary pressures? Although the rate of inflation is well within the target range at the moment. nvm I understand now

[LazyZombie]

Okay mark my answer please!
"Evaluate the extent to which monetary policy settings and budgetary policy have complemented each other in 2014 to promote the goal of full employment." (four marks)

Monetary policy and budgetary policy settings have been incompatible - working in opposition - as budgetary policy has been relatively contractionary as shown by policies such as the budget repair levy and the predicted fall in the budget deficit from $49.9 to $29.8 billion dollars, while monetary policy has maintained an expansionary stance, with the cash rate at 2.5%. The goal of full employment is to achieve the lowest unemployment rate, with few unused resources, without significant inflationary pressures and where cyclical unemployment is non-existent, suggested to be between 4-5% unemployment. While budgetary policy is contractionary, where fewer injections into the economy reduces aggregate demand and hence the derived demand for labour, some measures to boost employment have been put in place such as the $10000 mature-age subsidy for companies who hire workers over 50. Monetary policy, with the cash rate at a historically low 2.5%, decreasing the cost of credit and availability of cash, causing increases in consumption and investment through the transmission mechanism and hence increases in AD and the derived demand for labour.

[millie96]

What environmental aggregate supply policy do you guys use?

Even though the carbon tax isn't implemented anymore, can we still use it in questions where they dont specify this years actions? (e.g. what policy COULD be used?)

Thanks!

(and i'll critique your answer when I'm finished this prac paper

[theshunpo]

What environmental aggregate supply policy do you guys use?

Even though the carbon tax isn't implemented anymore, can we still use it in questions where they dont specify this years actions? (e.g. what policy COULD be used?)

Thanks!

(and i'll critique your answer when I'm finished this prac paper

I learnt both the Murray Darling Basin Plan and the Carbon Tax as environmental policies which influence aggregate supply. In the study design it says to know "how one environmental policy is designed to influence aggregate supply, long-term economic prosperity and living standards", I still went ahead and learnt more than the carbon tax because I, too, wasn't sure whether it can be still used, since it's been abolished. I would like to know what others think as well.

[LazyZombie]

you can use any past or proposed policy, like the emissions trading scheme

on a related note, I found this today randomly http://www.businessspectator.com.au/news/2014/7/7/policy-politics/59-economists-unite-carbon-pricing-petition

some big names in that article

[millie96]

In the 6 markers talking about a combination of monetary and budgetary policy in achieving a particular goal, do you have to actually define what monetary and budgetary policies are? or just the goal

[abcdqdxD]

In the 6 markers talking about a combination of monetary and budgetary policy in achieving a particular goal, do you have to actually define what monetary and budgetary policies are? or just the goal

yep define them

[Rachelle]

What is the difference between a cyclical CAD and a structural CAD??

Thanks

[M_BONG]

What is the difference between a cyclical CAD and a structural CAD??

Thanks

I assume you know what the CAD means so I will jump straight to it.
Structural CAD occurs when the CAD is harder to fix - more long term. It occurs when Australian spends more on foreign goods and services (imports) than what it earns from exporting stuff in the long term. Australia generally spends more than it earns and hence, this is built in to the current account and is known as a structural problem. This is known as the "savings-investment gap" where we tend to spend more, jeopardising on future investment and infrastructure savings.

Cyclical CAD is CAD caused by the peaks and troughs of the economic cycle - so this can change unlike the structural CAD. Eg. When our terms of trade is favourable, our CAD tends to be reduced and when it isn't favourable, our CAD tends to increase. So cyclical = it changes; structural = built in and hard to change.

[appleandbee]

Just wondering, for the environmental policy component, would I be able to use Carbon Tax or CPRS for next year's exam?

Should I even use those two policies because most students use them (like should I be different because I'm aiming for a high SS)?

[Geetee]

Just wanting to know if its important to know the different types of efficiency - technical, allocative, dynamic, inter temporal, do these tend to pop up on exams at all

[Gentoo]

Just wondering, for the environmental policy component, would I be able to use Carbon Tax or CPRS for next year's exam?

Should I even use those two policies because most students use them (like should I be different because I'm aiming for a high SS)?

It shouldn't matter what policy you pick; as long as you answer the question correctly, you'll get the marks for it. You don't need to 'differentiate' yourself from the crowd by picking a less common policy.

Just wanting to know if its important to know the different types of efficiency - technical, allocative, dynamic, inter temporal, do these tend to pop up on exams at all

While I don't remember seeing an exam question that directly asked you on a particular type of efficiency, I do remember my teacher saying that it looks good if you refer to one of the specific types of efficiency while answering certain questions (examiners would be more likely to give you full marks). For example, if a question asks you how a mining/superprofits tax could benefit future living standards, you could say that it bolsters inter-temporal efficiency etc., balancing current and future consumption so that resources are conserved and future living standards can be maintained. So yeah, it's worth knowing what they all mean.