Economics Questions Thread

[millie96]

how do you approach questions which ask about the effectiveness of the budgetary policy in achieving a goal in the past four years?

e.g. explain the effectiveness of the budgetary policy in achieving the goal of low inflation over the past four years (usually 4-6marks)

Would you talk about strengths/weaknesses of the budgetary policy in achieving low inflation e.g. automatic/discretionary stabilisers etc,  or trends over the past four years (such as how it was ineffective in 2012/13 for example)

thanks

[chasej]

how do you approach questions which ask about the effectiveness of the budgetary policy in achieving a goal in the past four years?

e.g. explain the effectiveness of the budgetary policy in achieving the goal of low inflation over the past four years (usually 4-6marks)

Would you talk about strengths/weaknesses of the budgetary policy in achieving low inflation e.g. automatic/discretionary stabilisers etc,  or trends over the past four years (such as how it was ineffective in 2012/13 for example)

thanks

I would basically define the goal of low inflation. Then start talking about the last four budgets in order from oldest to newest explaining the budget outcome and some major policy examples briefly and explaining how that would effect the goal of low inflation for each budget. Then come to some conclusion as a last sentence like "Although in x budget there was likely to be an inflationary impact overall the government's aim of budget balance has been achieved and thus the goal of low inflation is likely to have a greater chance of being achieved given the government's budgetary policy over the past four years".

This question is asking for you to talk about real world practical things given the "over the last 4 years" statement, hence simply talking about strengths and weaknesses and ways the policies effect low inflation would not suffice, and would at most earn you half the available marks.

[abcdqdxD]

I would basically define the goal of low inflation. Then start talking about the last four budgets in order from oldest to newest explaining the budget outcome and some major policy examples briefly and explaining how that would effect the goal of low inflation for each budget. Then come to some conclusion as a last sentence like "Although in x budget there was likely to be an inflationary impact overall the government's aim of budget balance has been achieved and thus the goal of low inflation is likely to have a greater chance of being achieved given the government's budgetary policy over the past four years".

This question is asking for you to talk about real world practical things given the "over the last 4 years" statement, hence simply talking about strengths and weaknesses and ways the policies effect low inflation would not suffice, and would at most earn you half the available marks.

Hmm but if it was 4-6 marks talking about 4 budgets is way overkill imo. I think I would pull out AS policies from the budget (e.g. infrastructure, NBN) and talk about how this has expanded AS and placed downward pressure on inflation to achieve the goal. Agree that strengths/weaknesses isn't relevant, "evaluate" type questions have been removed from the current study design.

[sam.utute]

Hi everyone

I was reading one of the Economics Assesment Reports, it said:

"to gain full marks, students must indicate that the GST is a proportional (flat rate) tax but is regressive in its applications".

So, would I need to say that for something like indirect taxes as well?

"eg. indirect taxes are usually a flat rate payment passed onto buyers of g/s but it can be either regressive (eg. carbon tax) or progressive (luxury car tax)?"

I guess my question is, do I need to clarify that indirect taxes are proportional but application is progressive/regressive?

My understanding of the quote from the assessment report:
Students usually categorise taxes into three broad categories:
Progressive, regressive and proportional.

The statement clarifies that GST is an example of a proportional tax (10% on top of the cost) that operates in a regressive manner.
I don't think you can make the statement that "indirect taxes are proportional". Some are, but not all.

You have to be super careful how you label certain things, and the examiners will be taking marks off for incorrect use of terminology.

[chasej]

My understanding of the quote from the assessment report:
Students usually categorise taxes into three broad categories:
Progressive, regressive and proportional.

The statement clarifies that GST is an example of a proportional tax (10% on top of the cost) that operates in a regressive manner.
I don't think you can make the statement that "indirect taxes are proportional". Some are, but not all.

You have to be super careful how you label certain things, and the examiners will be taking marks off for incorrect use of terminology.

I actually think my teacher taught me to use the word proportional when defining indirect taxes, I can't remember exactly though. I might check my old notes to see what I defined indirect tax as.

Edit: Can't find my definition but found this:

From: http://www.investopedia.com/terms/i/indirecttax.asp

Indirect taxes can also be defined as fees that are levied equally upon taxpayers, no matter their income

hence these taxes are all proportional and have a regressive effect as they impact the incomes of lower income earners more so than higher income earners.

[abcdqdxD]

To add to what has already been said, if I remember correctly, all proportional taxes are regressive in nature. Sam might want to confirm this.

[Jono_CP]

Hi could I have some assistance with this question please? I am confused as it does not mention specific budget policies for the question, rather the budget outcome. "The forecasted budget outcome for 2014-15 is -$40.8 billion. Explain how the budget outcome may affect the achievement of full employment."

[chasej]

Hi could I have some assistance with this question please? I am confused as it does not mention specific budget policies for the question, rather the budget outcome. "The forecasted budget outcome for 2014-15 is -$40.8 billion. Explain how the budget outcome may affect the achievement of full employment."

This question is asking you to discuss how the budget outcome effects the goal of full employment. So basically you would explain a defecit means expenditure exceeded receipts hence the government is having the effect of increasing AD through spending in G1 and G2 which causes suppliers to respond by increasing production to meet this increased demand, creating the need for more employees, reducing cyclical unemployment helping to achieve the goal of full employment.

If the question is for 4 or so marks or more you should also discuss the context of the budget in terms of the discretionary/automatic changes which effected the budget and the way this budget is compared to those of previous years, to put the changes to AD in context.

For example you may want to explain that the government is trying to reducing the defecit and achieve surplus, ultimately meaning this effect on AD would begin to be contractionery.

If the question was for even more marks you could discuss specific policies aimed at achieving full employment in the budget to show you're keeping up with current events and not just the theory of "budget outcome=this effect".

[Jono_CP]

This question is asking you to discuss how the budget outcome effects the goal of full employment. So basically you would explain a defecit means expenditure exceeded receipts hence the government is having the effect of increasing AD through spending in G1 and G2 which causes suppliers to respond by increasing production to meet this increased demand, creating the need for more employees, reducing cyclical unemployment helping to achieve the goal of full employment.

If the question is for 4 or so marks or more you should also discuss the context of the budget in terms of the discretionary/automatic changes which effected the budget and the way this budget is compared to those of previous years, to put the changes to AD in context.

For example you may want to explain that the government is trying to reducing the defecit and achieve surplus, ultimately meaning this effect on AD would begin to be contractionery.

If the question was for even more marks you could discuss specific policies aimed at achieving full employment in the budget to show you're keeping up with current events and not just the theory of "budget outcome=this effect".

Thanks so much, makes perfect sense. Didn't think that a deficit originally would actually help full employment on first thought, but given the spending on G1 + G2 I can see clearly now, the rain has gone.

Two more questions I have if anyone is willing to answer (verbatim off a practice SAC):

"Explain one reason for a possible increase in the cash rate in 2014."

"Explain (via one transmission mechanism) how the utilisation of monetary policy would affect the achievement of the economic goal of low inflation." (If it helps, I have chosen to focus on the transmission mechanisms of: Cost of Credit (savings and investment) & Cash Flows).

NB: I am going to need to practice multiple choice tomorrow (well actually today since I am posting this when the clock strikes midnight), I am studying Budgetary Policy & Monetary Policy. I feel ok about the short answer but I am notoriously scared to death and do not do well with the multiple choice. I also understand that anything can happen on a given SAC or Exam day, so even my short answer capabilities don't mean anything. E.g. everyone starts at a mark of 0/50. Any general tips on the multiple choice and to a lesser extent (hypothetically speaking) short answer?

It is a 50 mark SAC, with 30 marks short answer + 20 marks multiple choice  (10 x 2) and we only have about 50-55 minutes. Our teacher said we could possibly extend into recess, so maybe 1 hour to 1 hour and 5 minutes at maximum.

There will be time constraint pressure, my nerves will rise unbidden and threaten to shake my conviction and as well as my fear of multiple choice to add some more salt into my glorified wounds. Any tips on how to cope with these intense conundrums?

Thank you!

[abcdqdxD]

It is a 50 mark SAC, with 30 marks short answer + 20 marks multiple choice  (10 x 2) and we only have about 50-55 minutes. Our teacher said we could possibly extend into recess, so maybe 1 hour to 1 hour and 5 minutes at maximum.

There will be time constraint pressure, my nerves will rise unbidden and threaten to shake my conviction and as well as my fear of multiple choice to add some more salt into my glorified wounds. Any tips on how to cope with these intense conundrums?

Learn to deal with pressure. Write as fast as you can and always keep an eye on the clock. Figure out what order you're going to do the SAC in during reading time. Also do MC in reading time.  Aim to do MC in about 5 minutes and leave yourself 50 minutes to do 30 marks of SA.

[M_BONG]

Was just looking at past SACs, there was this four marker on our 2010 SAC. Looks really dodgy.

"Distinguish between fiscal balance and underlying cash balance".

Two questions:
a) Is this even on the Study Design?
b) The textbook defines fiscal balance as a strong and sustainable position where the government's medium term fiscal strategy is met, where budget surpluses occur regularly to prevent overwheming deficits that requires large debt repayments for future generations.

However, I just googled fiscal balance and it was defined as "The fiscal balance is an accrual measure that shows whether the Government has to borrow from financial markets to covers its activities."

So, the textbook definition says fiscal balance is a *positive* thing but google says it is a *neutral* indicator. Which one is more right, or would both get full marks?

Thanks! Any input appreciated

[chasej]

Was just looking at past SACs, there was this four marker on our 2010 SAC. Looks really dodgy.

"Distinguish between fiscal balance and underlying cash balance".

Two questions:
a) Is this even on the Study Design?
b) The textbook defines fiscal balance as a strong and sustainable position where the government's medium term fiscal strategy is met, where budget surpluses occur regularly to prevent overwheming deficits that requires large debt repayments for future generations.

However, I just googled fiscal balance and it was defined as "The fiscal balance is an accrual measure that shows whether the Government has to borrow from financial markets to covers its activities."

So, the textbook definition says fiscal balance is a *positive* thing but google says it is a *neutral* indicator. Which one is more right, or would both get full marks?

Thanks! Any input appreciated

Definitely on the study design.

Fiscal balance has two meanings, the one about achieving a budget balance and a certain method of determining the budget outcome.

The former is more relevant so use that one.

[Jono_CP]

Is the Terms of trade on the study design? This popped up randomly on our budgetary policy test and I was unprepared for a 'terms of trade' question which I think is unrelated to the study design. Might contact VCAA if I didn't receive full marks for that

[M_BONG]

Is the Terms of trade on the study design? This popped up randomly on our budgetary policy test and I was unprepared for a 'terms of trade' question which I think is unrelated to the study design. Might contact VCAA if I didn't receive full marks for that

Yes, absolutely. Terms of trade is on the Study Design; it's a key factor listed.

Also, your school has discretion to set any SAC they want - even if it's not within the SD, as long as the marking criteria is consistent for everyone.

[Jono_CP]

Yes, absolutely. Terms of trade is on the Study Design; it's a key factor listed.

Also, your school has discretion to set any SAC they want - even if it's not within the SD, as long as the marking criteria is consistent for everyone.

Oh okay, thanks for the clarification. Is it really on the study design for budgetary policy? Must have missed it...