HSC Economics Question Thread

[BradMate]

Are reserve requirements set by the government or the RBA, or some other regulatory body? (maybe APRA?)

From my understanding reserve requirements are restrictions and guidelines that must be met for deposits and loans by financial institutions and consumers.

e.g. the decreasing maximum LVRs for home loans for particular suburbs in Sydney and Melbourne.

Thanks

[nattynatman]

Hey, can someone explain this answer (D) to me please?

Thanks ~

[Lumenoria]

Hey, can someone explain this answer (D) to me please?

Thanks ~

Hey!
Well, in order to see whether inflation has gone up or down, you use the formula CPI(second period)-CPI(previous period)/CPI(previous period) x 100. Therefore, it is clear that the inflation levels have infact decreased.

For the second part, the decrease in numbers means that the Terms of Trade are deteriorating. Essentially, this means that export prices are decreasing relative to import prices, thus the economy can no longer afford to buy the same amount of imports as it exports. For example, countries that import oil will see an increase in their terms of trade when the oil industry is in a recession (where prices go down), while companies that export oil would see a decrease in their Terms of trade because they're not receiving enough money from their exports to sustain their demand for imports. The answer cannot be A, because the exports per se do NOT fall. A fall in export volumes usually ensues an increase in Terms of trade, where the country is able to afford a higher quantity of imports. In fact, in the long run, usually an economy with diminishing terms of trade needs to export an increased volume of goods to buy the same amount of imports. Therefore, the answer is D

I hope this makes sense
[/quote]

[angelahchan]

Hi, does anyone have info on china and the international business cycle? I know they implemented a stimulus package as a response to the gfc, but idk where to find info  on  the effects of  the package

[sophiegmaher]

Hey guys, anyone have any HSC question predictions?

[natashaa_99]

Hi,
Just wondering what the effect of monetary policy is on the exchange rate? Does loosening/tightening affect demand, supply, or both at the same time?
Thanks !

[sophiegmaher]

Hi,
Just wondering what the effect of monetary policy is on the exchange rate? Does loosening/tightening affect demand, supply, or both at the same time?
Thanks !

So monetary policy controls the cash rate, which subsequently controls the general level of interest rates in the economy. This influences the demand for an economy's currency. So, if contractionary monetary policy is employed in Australia to increase the cash rate, interest rates will increase. Relative to the interest rates in other countries, this increase in interest rates means that foreign investors would receive a greater return on their investments in Australia because of the greater interest repayments, hence they would want to do this and hence must be Australian Dollars to invest in Australia. So, the demand for Australian dollars increase, which causes an appreciation of the Australian Dollar- you can show this on an AD/AS graph for Australian dollars

[natashaa_99]

So monetary policy controls the cash rate, which subsequently controls the general level of interest rates in the economy. This influences the demand for an economy's currency. So, if contractionary monetary policy is employed in Australia to increase the cash rate, interest rates will increase. Relative to the interest rates in other countries, this increase in interest rates means that foreign investors would receive a greater return on their investments in Australia because of the greater interest repayments, hence they would want to do this and hence must be Australian Dollars to invest in Australia. So, the demand for Australian dollars increase, which causes an appreciation of the Australian Dollar- you can show this on an AD/AS graph for Australian dollars

Thanks so much! So supply wouldn't be affected by the decreased interest rate - just demand would be?

[angelahchan]

Hi, does anyone know whether fiscal or monetary policy have a shorter time lag? I think fiscal has a longer time lag for implementation, whereas monetary has a longer time lag for the effect after implementation to take place. but in 2014 q24 "explain the limitations of both fiscal and monetary policy in addressing economic slowdown", the sample answer seems to assume time lag means time lag for implementation... (so does time lag automatically mean time lag for implementation?)

[Vinnnnnnyyyyyy]

Thanks so much! So supply wouldn't be affected by the decreased interest rate - just demand would be?

Well, when demand for Aus dollars increases, supply also decreases. If you draw a Supply/Demand graph for Aus dollars, you can see this

[bunnykun]

This is probably a dumb question but in this sentence:
"Monetary policy can also be used. Lowering the cash rate can affect the term structure of interest rates across the economy, reducing the cost of credit."

what does "term structure" and "cost of credit" mean?

Thanks in advance!

[Cat_1]

Can someone please answer this question

Assess the effectiveness of government policy in Australia in attempting to improve the BOGS in recent times?

Thanks!

[mbaramilis]

Well, when demand for Aus dollars increases, supply also decreases. If you draw a Supply/Demand graph for Aus dollars, you can see this

Hi,

I get the concept but when you say increase and decrease, do you mean movement along the curve or an actual shift of the curve?

Thanks

[sophiegmaher]

Hi,

I get the concept but when you say increase and decrease, do you mean movement along the curve or an actual shift of the curve?

Thanks

Increase or decrease mean a shift of the curve, expansion or contraction mean a movement along the curve

[sophiegmaher]

Hi, does anyone know whether fiscal or monetary policy have a shorter time lag? I think fiscal has a longer time lag for implementation, whereas monetary has a longer time lag for the effect after implementation to take place. but in 2014 q24 "explain the limitations of both fiscal and monetary policy in addressing economic slowdown", the sample answer seems to assume time lag means time lag for implementation... (so does time lag automatically mean time lag for implementation?)

I think you were correct in your own analysis, where there are different types of time lag and monetary policy has a longer time lag of affect and a short time lag for implementation, whereas fiscal policy has a shorter time lag for affect and a longer time lag for implementation- this can also involve the time taken to recognise the trend and formulate a policy to counter-act it. This is also due to fiscal policy being subject to political constraints, where politicians wish to act in the interests of the public so they can get re-elected.