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UNIVERSITY OF SOUTH AUSTRALIA
SCHOOL OF COMMERCE
ECON1007 MACROECONOMICS
STUDY PERIOD 5, 2018.
Internal and External students
Written ASSIGNMENT
Due date: 7th October XXXXXXXXXXpm)
2
Econ1007 Macroeconomics Assignment SP5 2018
ASSIGNMENT TOPIC
Assignment 2
Written assignment
Weighting: 25%
Length Word limit: XXXXXXXXXXwords in total (including diagrams,
eferences and all text)
Due Date: Sunday 7th October XXXXXXXXXXpm
Topic Read the news article below and answer all questions.
Jobs boom puts RBA under pressure to raise interest rates by Jacob Greber
Australian Financial review; July 19, 2018.
With official labour market data for June showing employers added three times as many jobs
as forecast, some economists are warning the Reserve Bank risks being blindsided by a more
apid fall in the 5.4 per cent unemployment rate and faster inflation.
"The key things to watch are whether upward momentum in inflation and wages continues, and
the unemployment rate falls. The latter can happen at a faster pace than is incorporated in the
RBA's forecasts."
Employment surged by 50,900 people, with four in five taking up full-time positions, the
Australian Bureau of Statistics reported on Thursday. … Reserve Bank policy makers
epeatedly signalled they are in no hu
y to begin normalising the nation's ultra-low cash rate.
Jobs boom puts RBA under pressure to raise interest rate.
Despite the upbeat commentary, Australia's central bank is unlikely to lift the official cash rate
efore the second half of next year, according to financial market futures pricing, with several
high-profile economists not anticipating hikes until 2020 at the earliest. … Annette Beacher,
an economist at TD Securities, suggested money market investors are "asleep at the wheel" in
anticipating the official cash rate will remain unchanged through into the first half of 2019.
3
Econ1007 Macroeconomics Assignment SP5 2018
"If the unemployment rate slumps towards 5 per cent sooner rather than later (ie, not so gradual
after all), the RBA's rhetoric 'should' turn more hawkish by year end. "I do think wages are
about to pop, but will they be 3 per cent as the RBA is soft-targeting?" she said, noting that
union-negotiated wages agreements have lifted in recent months.
All eyes are now on next week's official second-quarter inflation numbers, which economists
predict will show are still at the bottom end of the Reserve Bank's 2-3 per cent target. One
factor keeping the jobless rate from falling more rapidly is Australia's participation rate, which
edged up to 65.7 per cent in June from 65.5 per cent in May. While that means more jobs need
to be created to pull the jobless rate down, higher participation is often seen as a sign of a strong
labour market as more workers are encouraged to look for jobs.
Helped by booming NSW and Victorian economies, the labour market has grown by 339,000
jobs over the past 12 month, with just under half in the nation's biggest state. The official figures
mi
or other indicators of an improving labour market, including rising job vacancies, which
have reached the highest annual growth in 7½ years, as well as surveys showing businesses are
enjoying positive conditions and expect to add more workers.
4
Econ1007 Macroeconomics Assignment SP5 2018
Answer all Questions below:
Qu. 1(a) Explain what is meant by the statement, “One factor keeping the jobless rate down
from falling more rapidly is Australia’s participation rate which edged up…”, by highlighting
the connection between jobs growth, participation rate and unemployment rate.
(3 marks)
Qu. 1(b) The article states that most of the job growth is with “ …four in five taking up full-
time positions”. Explain whether or not the official unemployment rate is affected by job
growth occu
ing mainly in the form of full-time positions in comparison to part-time positions.
In your answer explain the implications of this for the concept of measuring ‘full’ employment.
(3 marks)
Qu.2 Use the aggregate expenditure (AE) model to depict the situation that has occu
ed over
the past few months in terms of the resulting impact on economic output and (un)employment.
In your answer make sure to discuss the equili
ating process of moving to a new
macroeconomic equili
ium output.
(4 marks)
Qu. 3 Use the static AD-AS model to analyse the circumstances where the RBA is “..blindsided
y a more rapid fall in the 5.4 per cent unemployment rate and faster inflation”, and does not
aise interest rates; and jobs growth and the fall in the unemployment is greater than expected.
In your answer make sure to use the static AD-AS model show the initial impact on output and
the price level, and also explain the longer run implications if the Reserve Bank fails to raise
interest rates if economic circumstances as predicted by some market economists eventuate.
[6 marks]
Qu. 4 Use the the dynamic AD-AS model(s) to explain the economic circumstances which will
determine whether the Reserve Bank adopts the approach where “the official cash rates will
emain unchanged through into the first half of 2019” in contrast to the circumstances where
it will “turn more hawkish” and will raise interest rates over the next 12 months.
[6 marks]
Overall Presentation [3 marks]
Total XXXXXXXXXXmarks
5
Econ1007 Macroeconomics Assignment SP5 2018
AIMS AND OBJECTIVES OF MACROECONOMICS ASSIGNMENT
The assessment is primarily designed to advance your understanding and application of
economic theory to real world situations. Particular attention is given to using particular models
(i.e. AE model and static/dynamic AD/AS models) to analyse real world scenarios.
ASSESSMENT CRITERIA
Judging the quality of submitted material requires some judgment by academic staff. Rather
than a simple formulaic approach, markers combine a number of elements to judge the quality
of an assignment. In
oad terms, assessment of your assignments will take into account:
Relevance of your answer to the question (Did you answer the question?)
Did you use a model and graphical representation to analyse the question?
Clarity of expression (Is it written well?)
Logical planning and sequence (Does the argument make sense?)
Did you provide theoretical support for the arguments used?
Was the question answered fully or only in part?
Where appropriate, were sources properly cited and referenced?
Overall presentation, including co
ect grammar, spelling and punctuation (Is the presentation
of professional quality?)
For access to learning resources associated with assignment preparation see the learning hub
located at: https:
lo.unisa.edu.au/course/view.php?id=4074
REFERENCES AND PLAGIARISM
You are expected to answer written questions in your own words. In written academic work
you must acknowledge the source of your information (including set textbooks) but only those
eferences that are actually used should be cited. You should use the Harvard referencing
system. (see: https:
lo.unisa.edu.au/course/view.php?id=3839 )
ACADEMIC INTEGRITY
The university is committed to academic integrity and has policies and procedures in place to
ensure academic integrity. More information about academic integrity (AI) can be found in the
Assessment policies and procedures manual at: http:
www.unisa.edu.au/policies/manual/ Or
visit the AI Module website https:
lo.unisa.edu.au/mod
ook/view.php?id=252142 which
explains in detail how students can work with integrity at the University.
ANY WORK CONTAINING WORK THAT HAS BEEN JUDGED TO CONTAIN PLAGIARISM WILL
SCORE ZERO MARKS; SERIOUS ACADEMIC MISCONDUCT MAY RESULT IN SUSPENSION FROM
THE UNIVERSITY.
PENALTIES FOR LATE ASSIGNMENTS
Late assignments that do not have approved extensions will incur a penalty: for every day late,
ten per cent will be deducted. No assignments will be accepted after 7 days past the due date.
https:
lo.unisa.edu.au/course/view.php?id=4074
https:
lo.unisa.edu.au/course/view.php?id=3839
http:
www.unisa.edu.au/policies/manual
https:
lo.unisa.edu.au/mod
ook/view.php?id=252142
Slide 1
Macroeconomics
Study Period 5 2018
Dr Ronald Donato
Lectures 4 (chapter 9: to page
253)
Aggregate Expenditure (AE) and
Output in the Short Run
2 Copyright ©2018 Pearson Australia (a division of Pearson Australia Group Pty Ltd)– XXXXXXXXXX/Hu
ard/Macroeconomics/4e
• Well done to all – completing Online test 1. (Don’t stop - keep going!)
• Practise Quiz 2 available from this Friday.
– Covers same material as online test 2
– Chapters 5, 6 and 9
• Online Test 2 due Sunday- Sept 9th (11.00pm)
– See course outline. Reminder will be sent again next week
Reminder – Online Test 2 (what already!)
1. Understand how macroeconomic equili
ium is determined in
the Aggregate Expenditure (AE) model.
2. Discuss the determinants of the four components of aggregate
expenditure (C, I, G and NX) and define the marginal
propensity to consume and the marginal propensity to save.
3. Understand concept of macroeconomic equili
ium using 45
degree AE model.
Learning objectives
3
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ard/Macroeconomics/4e
Copyright ©2015 Pearson Australia (a division of Pearson Australia Group Pty Ltd) – XXXXXXXXXX/Hu
ard/Macroeconomics 3/e
Aggregate expenditure
Aggregate expenditure model: A macroeconomic model
that focuses on the short-run relationship between total
spending and real GDP, assuming that the price level is
constant.
Aggregate expenditure (AE): The total amount of
planned spending in the economy—the sum of
consumption, planned investment, government
purchases and net exports.
4
The aggregate expenditure model
LEARNING OBJECTIVE 1
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ard/Macroeconomics/4e
Copyright ©2015 Pearson Australia (a division of Pearson Australia Group Pty Ltd) – XXXXXXXXXX/Hu
ard/Macroeconomics 3/e
Aggregate Expenditure (AE) – comprises 4 components:
• Consumption (C)
• Planned investment (I)
• Government purchases (G)
• Net exports (NX)
BUT difference between planned AEp and actual AEa
The aggregate expenditure model
LEARNING OBJECTIVE 1
5
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ard/Macroeconomics/4e
Copyright ©2015 Pearson Australia (a division of Pearson Australia Group Pty Ltd) – XXXXXXXXXX/Hu
ard/Macroeconomics 3/e
Macroeconomic equili
ium Ye:
Planned Aggregate expenditure AEp = GDP (production)
Total production is matched by planned Expenditure.
No unplanned buildup or rundown of inventory/stock
Note: Actual AEa ≡ GDP (always equals - identity)
But Ye: Planned AEp = GDP
The aggregate expenditure model
LEARNING OBJECTIVE 1
6
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ard/Macroeconomics/4e
Copyright ©2015 Pearson Australia (a division of Pearson Australia Group Pty Ltd) – XXXXXXXXXX/Hu
ard/Macroeconomics 3/e
Difference between AEp and AE originates from:
difference planned Investment (Ip) and actual Investment (Ia)
Inventories: Goods that have been produced but not yet sold. Ie
stock held on hand
Actual investment will equal planned investment only when level
of unsold stock (i.e inventory levels) on hand is planned.
If unsold stock planned then: Ia = Ip ()
If unsold stock not planned then: Ia = Ip ()
The aggregate expenditure model
LEARNING OBJECTIVE 1
7
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