University of Queensland Central Bank Rate of GDP growth Economics Questions

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BSD119 GLOBAL BUSINESS
Going International II:
International Marketing
Introduction
CRICOS No.00213J
Copyright © 2019 McGraw-Hill Education (Australia) Pty Ltd . Hill, Global business today: Asia-Pacific Perspective, 5e
Introduction
tension in strategy between reducing
costs and responding to local
conditions is present here
key debate: degree to which
marketing mix is standardised or
customised
in market segmentation, product
attributes, distribution strategy,
communication strategy and pricing
strategy
CRICOS No.00213J
Copyright © 2019 McGraw-Hill Education (Australia) Pty Ltd . Hill, Global business today: Asia-Pacific Perspective, 5e
Globalisation of markets?
similar world markets so no need to
customise?
• Levitt’s argument but not so simple
• at least for consumer products
• though there is a convergence of tastes & preferences
to some extent
continuing persistence of cultural & economic
differences stops standardisation
• may never occur
‘global’ brands perceived, promoted & used
differently in different countries
• + still trade barriers & different standards still a
constraint
CRICOS No.00213J
Copyright © 2019 McGraw-Hill Education (Australia) Pty Ltd . Hill, Global business today: Asia-Pacific Perspective, 5e
Globalisation of markets?
one issue for globalisation – market
segmentation
identifying distinct groups of consumers whose
purchasing behaviour differs from others in
important ways,
• based on criteria such as geography, demographics,
sociocultural factors, psychological factors
another issue: product attributes
• products sell well when attributes match consumer
needs & when needs vary…
CRICOS No.00213J
Copyright © 2019 McGraw-Hill Education (Australia) Pty Ltd . Hill, Global business today: Asia-Pacific Perspective, 5e
Market Segmentation
different segments – different patterns of
purchasing behaviour
• marketing mix has to be adjusted from segment to
segment
• e.g. product design, pricing, distribution & communication
strategy
goal – optimise fit between consumers’ purchasing
behaviour in given segment & the marketing mix
• thereby maximising sales to the segment
• e.g. Toyota – Lexus division to sell high-priced luxury cars
to high-income consumers
• & entry-level models, (Corolla) to lower-income consumers
two main issues to be aware of:
• differences between countries in structure of market
segments
• existence of segments that transcend national borders
CRICOS No.00213J
Copyright © 2019 McGraw-Hill Education (Australia) Pty Ltd . Hill, Global business today: Asia-Pacific Perspective, 5e
Market segmentation: Q: why?
in international
markets
structural
differences
between
countries
important in one
country but no
parallel in home
country
therefore need
to develop
unique
marketing mix
segments that
transcend
national borders
enhances
standardisation
possibilities
global youth?
eg Rip Curl
A: because not all can transcend those national borders
CRICOS No.00213J
Copyright © 2019 McGraw-Hill Education (Australia) Pty Ltd . Hill, Global business today: Asia-Pacific Perspective, 5e
Product Attributes
a product can be viewed as a bundle of
attributes
• e.g. car: power, design, quality, performance, fuel
consumption, comfort
products sell well when their attributes match
consumer needs (& prices are appropriate)
• e.g. BMW cars sell well to people who have high needs for
luxury, quality & performance – because BMW builds those
attributes into its cars
if consumer needs were the same the world over,
a company could simply sell same product
worldwide
• but needs vary from country to country, depending on
culture, level of economic development, product standards
CRICOS No.00213J
Copyright © 2019 McGraw-Hill Education (Australia) Pty Ltd . Hill, Global business today: Asia-Pacific Perspective, 5e
Product attributes: differences here
cultural differences
countries differ
along range of
dimensions
economic
development
highly
developed
countries –
extra attributes
in products
eg religion &
tradition
particularly important
in marketing
foodstuffs
& not willing to
go without these
for lower prices
product &
technical
standards
can be
government
-mandated
product
standards
or
differences
in technical
standards
CRICOS No.00213J
Copyright © 2019 McGraw-Hill Education (Australia) Pty Ltd . Hill, Global business today: Asia-Pacific Perspective, 5e
Conclusion
?Therefore, due to differences with market
segmentation and product attributes
?adjustments have to be made with marketing mix
?will see examples of these differences in:
• distribution strategy
• communication strategy
• pricing strategy
?and will then see how the marketing mix is often
configured
CRICOS No.00213J
Copyright © 2019 McGraw-Hill Education (Australia) Pty Ltd . Hill, Global business today: Asia-Pacific Perspective, 5e
CRICOS 00213J. Image: Štefan?ík, 2017
BSD113
Economics
Tute 10
Monetary policy
BSD113 ECONOMICS
Q. 1.5 What is money?
? English economist William Stanley Jevons described a world tour during the 1880s by a
French singer, Mademoiselle Zélie. One stop on the tour was a theatre in the Society
Islands, part of French Polynesia in the South Pacific. She performed for her usual fee,
which was one-third of the receipts. This turned out to be three pigs, 23 turkeys, 44
chickens, 5000 coconuts and ‘considerable quantities of bananas, lemons, and oranges’.
She estimated that all of this would have had a value in France of 4000 francs. According
to Jevons, ‘as Mademoiselle could not consume any considerable portion of the receipts
herself, it became necessary in the meantime to feed the pigs and poultry with the fruit’.
? Q. Did the goods Mademoiselle Zélie receive as payment fulfil the four functions of money
described in the chapter?
? Why or why not?
BSD113 ECONOMICS
2
Q. 1.5 What is money?
What are the four functions of money?
? Medium of exchange
? Unit of account
? Store of value
? Standard of deferred payment
Which were met by her payment?
? Only medium of exchange – as she performed her services and received
this payment
? But how could these work as unit of account?
? Or as a standard for deferred payment?
? Not a store of value (had to feed the fruit to the animals and they
wouldn’t live for ever)
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3
4
Q. 2.4 The money supply pyramid
Q. Briefly explain whether each of the following is counted in M1.
? The coins in your pocket
? The funds in your cheque account
? The funds in your savings account
? Your MasterCard credit card limit
BSD113 ECONOMICS
Q. 2.4 The money
supply pyramid
Q. Briefly explain whether each of the
following is counted in M1.
? The coins in your pocket
? The funds in your cheque account
? The funds in your savings account
? Your MasterCard credit card limit
BSD113 ECONOMICS
5
Q. 2.4 The money
supply pyramid
? This question asks if each of the following
?
?
?
?
?
BSD113 ECONOMICS
belongs to M1
Which means you need to remind
yourselves of the money supply
(see p. 467)
M1 = currency + value of all demand
deposits with banks
M3 = M1 + all other deposits of private nonbank sector with (domestic & foreign) banks
Broad money = M3 + deposits in non-banks
less holdings of non-bank depository
corporations
6
Q. 2.4 The money
supply pyramid
a. coins in your pocket
? Yes, M1 (currency)
b. funds in your cheque account
? Yes, M1 (demand deposit account)
c. funds in your savings account
? No, not M1 (unless it is a demand deposit
account, but if fixed term not M1)
d. your MasterCard credit card limit
? No, not M1 (neither currency nor demand
deposit account)
BSD113 ECONOMICS
7
Q. 2.4 The RBA inflation target
The RBA has stated that ‘The principal medium-term objective of
monetary policy is to control inflation, so an inflation target is thus the
centerpiece of the monetary policy framework’.
Q. Explain why the RBA is targeting inflation in Australia.
BSD113 ECONOMICS
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Q. 2.4 The RBA inflation target
Remember the RBA objectives;
• stable currency, full employment, economic growth and prosperity
But it has decided best way to do this is keep inflation low
And what is the target?
Not a specific % but between 2 & 3% inflation
BSD113 ECONOMICS
9
? Q. Explain the most frequent reason why the RBA uses
open market operations in Australia.
Q. 4.10 Open market
operations
BSD113 ECONOMICS
1
0
Q. Explain the most frequent reason why the RBA uses open
market operations in Australia.
? OMOs are about buying & selling financial instruments (CGS,
bonds & securities)
? Most of the time the RBA is using them to offset daily deficits
or surpluses in the financial system to keep interest rates at the
same level
? The point is – as we’ll see next – the infrequent use is to change
interest rates,
? i.e. to implement monetary policy
Q. 4.10 Open market
operations
BSD113 ECONOMICS
1
1
Chapter 16
The RBA
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12
Q. 2.7 (p.525) OMO’s
Q. If the RBA purchases $100 million worth of
Commonwealth Government Securities (CGS),
assuming all else remains the same (ceteris
paribus), predict what will happen to interest
rates.
Explain your reasoning.
BSD113 ECONOMICS
13
Q. 2.7 (p.525) OMO’s
? This is the equivalent to injecting money
into the system (to pay for the CGS being
bought)
? Which is the equivalent of not offsetting
overnight cash surplus
? Which means lower interest rates
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14
3.5 Monetary policy
Q. In explaining why monetary policy did not pull Japan out of a recession in
the early 2000s, an official at the Bank of Japan was quoted as saying that
despite ‘major increases in the money supply’, the money ‘stay[ed] in banks’.
Explain what the official meant by saying that the money stayed in banks.
Why would that be a problem? Where does the money go if an expansionary
monetary policy is successful?
BSD113 ECONOMICS
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3.5 Monetary policy
Apparently, banks in Japan were not lending out the new reserves being
created by the Bank of Japan’s expansionary monetary policy. For an
expansionary monetary policy to be successful, banks have to lend out the
reserves created by the central bank. Banks in Japan were either reluctant to
make loans to their existing customers—perhaps because they believed that
the risk of borrowers defaulting on loans had increased—or the banks were
having difficulty finding firms optimistic enough about the future to be willing
to borrow in order to purchase new machinery, equipment and buildings.
BSD113 ECONOMICS
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17
Q. 3.7 Monetary
policy and
market
expectations
BSD113 ECONOMICS
? How might firms’ expectations that the rates of return
on new investments are too low make monetary policy
less effective in ending a recession?
18
Q. How might firms’ expectations that the rates of return
on new investments are too low make monetary policy less
effective in ending a recession?
? Effectiveness of monetary policy depends on
Q. 3.7 Monetary
policy and
market
expectations
BSD113 ECONOMICS
expectations (as well as other factors)
? We know that monetary policy is likely to be more
effective in slowing down the economy
? ie interest rates go up, reluctance to borrow
? but interest rates go down and the response can be
affected by (less optimistic) expectations about the
future
19
Q. 3.7 Monetary
policy and
market
expectations
BSD113 ECONOMICS
Q. How might firms’ expectations that the rates
of return on new investments are too low make
monetary policy less effective in ending a
recession?
? Firms can recognise the intention but if they
feel that the recovery will be slow, they’ll be
unwilling to borrow for new investments
? because they can’t be sure of good rates of
return
? Even with lowered interest rates, they could
still be unwilling if they fear there won’t be
much of a response from consumers so less
demand for their output
Q. 3.14 RBA
and policy
limits
BSD113 ECONOMICS
Briefly explain whether you agree with the
following statement:
‘The RBA has an easy job. If it wants to increase
real GDP by $20 billion, all that it has to do is
reduce interest rates.’
? The statement is incorrect.
? The relationship between interest rates and the
Q. 3.14 RBA
and policy
limits
BSD113 ECONOMICS
components of aggregate demand—
consumption, investment, government
purchases and net exports—is not known with
any accuracy.
? While it is agreed that a fall in interest rates will
result in an increase in real GDP it is not known
by exactly how much—never mind exactly $20
billion.
? When interest rates are lower, households are
more likely to buy new homes and cars, and
firms are more likely to buy new factories and
equipment. However, the extent to which
households and firms borrow will depend on
their expectations of economic growth.
CRICOS 00213J
See you next week!
BSD113 ECONOMICS
Unless otherwise noted all contents of this file are copyright QUT. Contents are provided for instructional use.
CRICOS 00213J. Image: Štefan?ík, 2017
BSD113
Economics
Tutorial 9 week 10
Unemployment and inflation
BSD113 ECONOMICS
Q 1.7 Labour force
? Full-time homemakers are not included in
the employment or labour force totals
compiled in the ABS labour force survey.
They are included in the working age
population totals. Suppose that
homemakers were counted as employed
and included in the labour force statistics.
What would be the impact on the
unemployment rate and the labour force
participation rate?
BSD113 ECONOMICS
2
Q 2.4 Costs of unemployment
? What are the costs to individuals of being
unemployed?
? Is the cost to society of unemployment equal to
the sum of the costs to the individuals?
? Why or why not?
BSD113 ECONOMICS
3
Q. 3.8 Full
employment
? When the Australian economy is at full
employment, why isn’t the unemployment
rate, as measured by the ABS, equal to
zero?
BSD113 ECONOMICS
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Q 5.6 CPI
Q. Briefly explain whether you agree or
disagree with the following statement:
‘I don’t believe the government price statistics.
The CPI for 2014 was 106, but I know that the
inflation rate couldn’t have been as high as 6
per cent in 2014.’
BSD113 ECONOMICS
5
Q 5.8 CPI Biases
Q. In each of the following explain whether you think the CPI would
overestimate, underestimate or accurately estimate the general price level,
assuming all else remains constant.
a) A severe drought reduces the production of tropical fruit, causing
b)
c)
the price of tropical fruit to rise significantly.
Consumers switch to buying front-loading clothes washing
machines instead of the less water-efficient top-loading washing
machines, even though front-loading washing machines are more
expensive.
New technology significantly decreases the price of 3D televisions.
BSD113 ECONOMICS
6
Q 5.9 (p.424)
Calculating
CPI
• Consider a simple economy that produces only three products. Use the
information in the following table to calculate the inflation rate for 2015
as measured by the consumer price index.
7
Q. 7.12 Costs of inflation
Explain why the costs to individuals of
inflation are less if the inflation is
anticipated.
Need to check the costs of anticipated
inflation
And costs of unanticipated inflation
Money isn’t ‘worth’ as much
This is about entering various contracts with an
expected figure of inflation
Need to hold more of it
Menu costs
But can win or lose depending on whether it is higher
or lower
Lose if agree to 2% wage rise & inflation is 4%
Gain if borrow at 5% but inflation is 7%…
BSD113 ECONOMICS
8
CRICOS 00213J
See you next week!
BSD113 ECONOMICS
Unless otherwise noted all contents of this file are copyright QUT. Contents are provided for instructional use.
CRICOS 00213J. Image: Štefan?ík, 2017
BSD113
Economics
Week 13
Revision
BSD113 ECONOMICS
When
is the
exam?
•Friday
February 5th,
12:00 noon
How
long is
the
exam?
•The exam is
two hours long,
online only.
Exam details
BSD113 ECONOMICS
2
What is being examined?
Exam details
• The exam relates to all materials from week 8 to week 12 inclusive.
• GDP, Income and Growth
• eContent and workshop week 8, tutorial wk. 9, ch. 13
• Unemployment & Inflation
• eContent and workshop week 9, tutorial wk 10, ch 14
• Monetary policy
• eContent and workshop week 10, chs 16 and 17, tutorial wk 11
• Fiscal policy
• eContent and workshop week 11, tutorial wk 12, ch 18
• International Trade
• eContent and workshop week 12, tutorial wk 13, ch 19
What percentage of the total mark is this exam worth?
• 50% of the final mark for the unit
BSD113 ECONOMICS
3
Exam structure
? The exam will consist of five sections covering the five
topics we have looked at from week 8 to week 12.
? GDP, income and growth
? Unemployment and inflation
? Money and monetary policy
? Fiscal policy
? International Trade
? YOU MUST ANSWER ALL FIVE SECTIONS FULLY!
BSD113 ECONOMICS
5
Exam structure
What type of questions can I expect to find in
each section?
? You can expect to be asked a number of
short answer questions that cover off
definitions and theory as well as being
asked to answer some applied economics
questions that involve interpreting data,
and so on.
? The tutorial questions and sample exam are
both good guides in terms of question
structure.
BSD113 ECONOMICS
5
Exam structure
How many questions in each section?
? There are two questions in each section.
? One question is for four (4) marks, one is for six (6) marks
? A question might have more than one part. There could be
one question with two parts, or three parts, or four parts.
? Some questions can be answered with a couple of
sentences, some will need a lot more.
BSD113 ECONOMICS
6
The material can be approached by
looking at two levels of detail.
Macroeconomics
BSD113 ECONOMICS
The first is the definitions and
descriptions.
The second looks at the problems and
issues that surround the topic.
7
Macro topics
? So for the first level/ type you might expect
questions along the lines of these;
? what’s GDP? how is it measured?
? what’s inflation? how is it measured?
? what are the functions of money?
? who is responsible for monetary policy, what is
its instrument, how does it work?
? who is responsible for fiscal policy, what are
the instruments, how do they work?
? how do nations benefit from trade?
? why does free trade result in net benefits?
BSD113 ECONOMICS
8
Macro topics
? Each topic also has a range of issues associated with it.
You can expect questions relating to these sorts of
ideas;
? problems with the calculating GDP
? problems (biases) with the measurement of CPI
? problems of effectiveness of monetary and fiscal
policy
? types of unemployment; costs of unemployment
? issue of financial independence of RBA
? debt: problem or not?
? poor arguments for protectionism
? Typically, these answers tend to be longer and attract
more marks.
BSD113 ECONOMICS
9
Types of questions
? Questions asking you to explain the
rationale behind a particular policy tool
? “How does monetary policy help in a
recession?”
BSD113 ECONOMICS
10
Types of questions
? Applied theoretical questions.
? “What are some issues associated with
monetary policy or with fiscal policy”
BSD113 ECONOMICS
11
Types of questions
? Critical analysis questions.
• Has the policy approach worked?
• Why might it not work?
• What’s wrong with the protectionist
arguments?
BSD113 ECONOMICS
12
The exam is not designed to just test
your memory
What do the
style of
questions tell
us?
The exam is also designed to test your
understanding:
The more you think about the reasons
behind problems and policy solutions
etc the easier it will be to remember
key points and answer questions
BSD113 ECONOMICS
14
Revision strategy
1
Check out final
exam revision
resources on
Blackboard
BSD113 ECONOMICS
2
3
Review eContent &
relevant textbook
chapters
Go over the tutorial
questions and the
MEL homework
quizzes
4
Be thorough –
there’re no short
cuts
5
Keep revision active
• and practise, practise,
practise writing out your
answer
So macroeconomics: what was
that all about?
Macro policy aims can be summarised as;
? stable and positive economic growth
? low unemployment
? price stability (low inflation).
How do we know where we are at (analysis) and where we
want to go (policy)?
? GDP
? (which is…)
? but what’s missing there
? Want to avoid macroeconomic problems that are costly for the economy and
individuals
? ie unemployment and inflation
BSD113 ECONOMICS
15
So macroeconomics: what was
that all about?
Key policy tools to achieve macroeconomic goals
? Fiscal policy
? Monetary policy
? whose responsibility?
? instrument?
? how does it work?
? what problems?
The importance of international trade
? a vehicle for growth and prosperity (free trade)
? how can trade be mutually beneficial
? how can it go wrong
? noting the emptiness of protectionist arguments
BSD113 ECONOMICS
16
Key points: GDP and
Growth
? What is GDP?
? How do we define it?
? Can it be expressed as an equation?
? What is the circular flow model?
? How can we draw the circular flow model?
BSD113 ECONOMICS
17
Key points: GDP and
Growth
? What are the components of GDP (C+I+G etc).
? What does each of these mean?
? What are the shortcomings of GDP as a
measure?
? What is nominal GDP? What is real GDP?
? How do we calculate economic growth?
BSD113 ECONOMICS
18
Key points: GDP and
Growth
? What determines long run economic growth?
? What do per worker production functions tell
us?
? Is economic growth good or bad?
BSD113 ECONOMICS
19
Key points: Money
and monetary policy
? What are the goals of monetary policy?
? How does inflation targetting fit into these
goals?
? How does the RBA use OMOs to implement
monetary policy?
? expansionary and contractionary
BSD113 ECONOMICS
20
Key points: Money
and monetary policy
? How do interest rates affect general
demand in the economy?
? How do interest rates affect C & I & NX?
? What are the problems with monetary
policy
? Is the independence of the RBA good or
not?
BSD113 ECONOMICS
21
Key points:
Fiscal policy
What are the two types of
fiscal policy?
ie what are automatic
stabilisers
what is non-discretionary
fiscal policy?
How does the government
use the instruments to
implement fiscal policy?
expansionary and
contractionary
What are problems with fiscal policy?
Is government debt a problem or not?
BSD113 ECONOMICS
22
Key points:
international
trade
How nations
benefit from
trade
• ie specialisation according to comparative
advantage
• (& where does comparative advantage come
from?)
• (& why don’t we see complete specialisation?)
Effects of
tariffs or
quotas
• what happens to consumer & producer & total
surplus
Arguments for
protectionism
• and what’s wrong with them
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The last last word ?
? Economics is a challenging subject area
? don’t over complicate it
? remember economics isn’t just about knowledge it is
also about a particular way of looking at and thinking
about a problem
? If you get stuck ….
? consultations (or email)
? help each other with revision
? Look after yourself
? eat and sleep well
? Enjoy your new way at looking at life..
? that is what we intended!
? so don’t forget economics and don’t forget to keep
thinking like an economist
BSD113 ECONOMICS
25
CRICOS 00213J
BSD113 ECONOMICS
Unless otherwise noted all contents of this file are copyright QUT. Contents are provided for instructional use.
CRICOS 00213J. Image: Štefan?ík, 2017
Revision
workshop
Week 13
BSD113 ECONOMICS
GDP: what’s included
and what isn’t?
? Paper bought by a printer for producing
newspapers
BSD113 ECONOMICS
2
GDP: what’s included
and what isn’t?
? Paper bought by a printer for producing
newspapers
? No, intermediate good
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3
GDP: what’s included
and what isn’t?
Paper bought by a student to take notes
BSD113 ECONOMICS
4
GDP: what’s included
and what isn’t?
? Paper bought by a student to take notes
? Yes, final good
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5
GDP: what’s included
and what isn’t?
Government payment to pensioners
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GDP: what’s included
and what isn’t?
? Government payment to pensioners
? No, transfer (nonproductive, not part of G)
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GDP: what’s included
and what isn’t?
? Government payment to public servants
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8
GDP: what’s included
and what isn’t?
? Government payment to public servants
? Yes, this is part of G
BSD113 ECONOMICS
9
GDP: what’s included
and what isn’t?
DVD bought by a family
BSD113 ECONOMICS
10
GDP: what’s included
and what isn’t?
? DVD bought by a family
? Yes, final good
BSD113 ECONOMICS
11
GDP: what’s included
and what isn’t?
A second hand car bought by a family
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12
GDP: what’s included
and what isn’t?
A second hand car bought by a family
No, second-hand, not new
BSD113 ECONOMICS
13
GDP: what’s included
and what isn’t?
A van bought by a business for business use
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GDP: what’s included
and what isn’t?
A van bought by a business for business use
Yes, final good
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GDP: what’s included
and what isn’t?
Shares bought by a family with savings
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GDP: what’s included
and what isn’t?
Shares bought by a family with savings
No, non-productive, transfer
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GDP and
economic
growth
Can’t include intermediate goods – and component of
a final product is an intermediate good – so don’t include
That.
Have to keep PRICE constant – as all we are interested
in is what’s happened to output, so no 2010 prices, only base
year prices
2009: (100 x $10) + (50 x $15) + (200 x $40) = $9750(000)
2010: (120 x $10) + (45 x $15) + (210 x $40) = $10275(000)
BSD113 E CONOMICS
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GDP and
economic
growth
Growth rate
= [(current year – previous year) / previous year] x 100
= [(GDP 2010 – GDP2009) / GDP2009] x 100
= [(10275 – 9750) / 9750] x 100
= (525 / 9750) x 100
= 0.05385 x 100
= 5.38%
BSD113 E CONOMICS
19
Unemployment and
inflation
? How do we calculate the labour force?
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Unemployment and
inflation
? How do we calculate the labour force?
? Employed + Unemployed
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Unemployment and
inflation
How do we calculate the unemployment rate?
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Unemployment and
inflation
How do we calculate the unemployment rate?
(Unemployed/labour force)*100
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Unemployment and
inflation
How do we calculate the participation rate?
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24
Unemployment and
inflation
How do we calculate the participation rate?
(Labour force/working age population)*100
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Unemployment and
inflation
What are the types of unemployment?
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26
Unemployment and
inflation
What are the types of unemployment?
Frictional, structural and cyclical (you could
add seasonal if you like)
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Unemployment and
inflation
What are the costs of unemployment?
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Unemployment and
inflation
What are the costs of unemployment?
? to the individual
? to the economy
? to the government
Check back to your notes for these.
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Unemployment and
inflation
How do we calculate the CPI?
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Unemployment and
inflation
How do we calculate the CPI?
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31
Unemployment and
inflation
How do we calculate inflation?
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Unemployment and
inflation
How do we calculate inflation?
[(current year CPI – previous year CPI)/previous year CPI] x 100
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Unemployment and
inflation
What are the types of inflation?
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Unemployment and
inflation
What are the types of inflation?
Cost push/ demand pull
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Unemployment and
inflation
What are the costs of inflation?
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36
Unemployment and
inflation
What are the costs of inflation?
Redistribution; depends on extent it is
anticipated or un-anticipated
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Fiscal policy
Who controls fiscal policy? The government or
the RBA?
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Fiscal policy
Who controls fiscal policy? The government or
the RBA?
Government. RBA has carriage of monetary
policy.
Recall also that it is only Federal government
– not state governments or local governments
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Fiscal policy
What are the two instruments of fiscal policy?
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40
Fiscal policy
What are the two instruments of fiscal policy?
Taxation and expenditure
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Fiscal policy
? Q. When the economy is experiencing
?
?
?
?
BSD113 ECONOMICS
inflation the government can:
Reduce expenditures and leave taxes
constant in order to stimulate aggregate
demand.
Increase government purchases or decrease
taxes in order to increase aggregate
demand.
Decrease government purchases or increase
taxes in order to decrease aggregate
demand.
Change spending and taxation but not
aggregate demand or aggregate supply.
42
Fiscal policy
? Q. When the economy is experiencing
?
?
?
?
BSD113 ECONOMICS
inflation the government can:
Reduce expenditures and leave taxes
constant in order to stimulate aggregate
demand.
Increase government purchases or decrease
taxes in order to increase aggregate
demand.
Decrease government purchases or increase
taxes in order to decrease aggregate
demand.
Change spending and taxation but not
aggregate demand or aggregate supply.
43
Fiscal policy
Name the two types of fiscal policy?
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44
Fiscal policy
Name the two types of fiscal policy?
? Non-discretionary
? Discretionary
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45
Fiscal policy
Define non-discretionary fiscal policy
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46
Fiscal policy
Define non-discretionary fiscal policy
Automatic stabilisers:
Government spending and taxes that
automatically increase or decrease along with
the business cycle
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Fiscal policy
Define discretionary fiscal policy
? Countercyclical policy
? When the government is taking actions to
change spending or taxes to achieve its
economic objectives
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48
Fiscal policy
What is the Government purchases multiplier?
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49
Fiscal policy
What is the Government purchases multiplier?
GPM = change in equilibrium real GDP/ change in
government purchases
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50
Fiscal policy
What is the Government tax multiplier?
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51
Fiscal policy
What is the Government tax multiplier?
GTM = change in equilibrium real GDP/ change in taxes
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52
Fiscal policy
There are three time lags related to fiscal policy. What
are they?
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53
Fiscal policy
There are three time lags related to fiscal policy. What
are they?
? Recognition lag
? Legislative lag
? Implementation lag
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54
Fiscal policy
What is “crowding out”?
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55
Fiscal policy
What is “crowding out”?
A decline in private expenditures as a result of an
increase in government purchases
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Monetary policy
? What are the four functions of money?
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57
Monetary policy
What are the four functions of money?
? Medium of exchange?
? Unit of account?
? Store of value?
? Standard of deferred payment
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Monetary policy
What are the five criteria that make
something acceptable as money?
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Monetary policy
What are the five criteria that make
something acceptable as money?
? The good must be acceptable to most
traders.?
? It should be a standardised quality.
? It should be durable.
? It should be valuable relative to its
weight so that it can be easily
transported.?
? It should be divisible.
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Monetary policy
? The money supply pyramid has four levels.
Name them.
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Monetary policy
? The money supply pyramid has four levels.
Name them.
? Currency
? M1
? M3
? Broad money
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Monetary policy
? Who controls the cash rate?
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Monetary policy
? Who controls the cash rate?
? The RBA
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64
Monetary policy
? What is the cash rate?
? It is the interbank rate; the overnight
money market interest rate.
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Monetary policy
? The RBA uses the cash rate to achieve an
inflation target. What is the target?
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Monetary policy
? The RBA uses the cash rate to achieve an
inflation target. What is the target?
? 2%-3% on average across the business
cycle.
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Monetary policy
? The RBA has three statutory responsibilities.
What are they?
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Monetary policy
? The RBA has three statutory responsibilities.
What are they?
? Full employment of the labour force
? Stability of the Australian currency.
? Economic prosperity and welfare for the
people of Australia.
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Monetary policy
? The RBA is concerned that unemployment is
growing quickly and real GDP growth is
falling sharply. Which type of policy
response are they likely to make in these
circumstances? Expansionary policy, or
contractionary policy.
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Monetary policy
? The RBA is concerned that