Economics Questions Thread

[chrisjb]

Output gap = GDP-Potential GDP / Potential GDP

So... when people talk about positive output gaps (greater than 1)... how is that possible? In my head GDP cannot exceed potential GDP, therefore there cannot be a positive output gap, but every source i've looked at says there can be, but doesn't explain why there can be.

EDIT: I also cannot understand this statement from the 2008 assessors report:

As surpluses usually act as a restraint on aggregate demand through the government collecting more in revenues (example
higher taxes) than they outlay, it is likely that demand for imports may be reduced.

[Jdog]

okay question:


automatic stablizers are called the cyclical component of budgetary policy; aren't they counter cyclical in their approach to macro-economic demand management e.g transfer payments decrease in times of economic prosperity which reduces spending hence downward pressure on eco-growth.

If this is the case, I don't quite understand why it is refeerred to as Cylical

[Water]

okay question:


automatic stablizers are called the cyclical component of budgetary policy; aren't they counter cyclical in their approach to macro-economic demand management e.g transfer payments decrease in times of economic prosperity which reduces spending hence downward pressure on eco-growth.

If this is the case, I don't quite understand why it is refeerred to as Cylical

Cyclical just refers to the economic/business cycle.


With regards to counter cyclical/pro cyclical, its a more defined approach.


So for example



Apple Can have Red or Green Apple (But surely they'll have different textures)

[Jdog]

okay question:


automatic stablizers are called the cyclical component of budgetary policy; aren't they counter cyclical in their approach to macro-economic demand management e.g transfer payments decrease in times of economic prosperity which reduces spending hence downward pressure on eco-growth.

If this is the case, I don't quite understand why it is refeerred to as Cylical

Cyclical just refers to the economic/business cycle.


With regards to counter cyclical/pro cyclical, its a more defined approach.


So for example



Apple Can have Red or Green Apple (But surely they'll have different textures)

so cyclical refers to the fact it changes as the economic cycle changes.

[Water]

okay question:


automatic stablizers are called the cyclical component of budgetary policy; aren't they counter cyclical in their approach to macro-economic demand management e.g transfer payments decrease in times of economic prosperity which reduces spending hence downward pressure on eco-growth.

If this is the case, I don't quite understand why it is refeerred to as Cylical

Cyclical just refers to the economic/business cycle.


With regards to counter cyclical/pro cyclical, its a more defined approach.


So for example



Apple Can have Red or Green Apple (But surely they'll have different textures)

so cyclical refers to the fact it changes as the economic cycle changes.

Not sure if we're on the same page here, but I"ve always understood this as.


Cyclical Component of the Budgetary Policy refers to the Policies that tackle the fluctuations within the economic cycle.


The fact that they  are in (pro cyclical/counter cyclical) manner is an evaluation.


And I"m not sure what your referring to "it" as???



PS: If I'm talking rubbish, then please correct me

[Jdog]

I thought cyclical component of budgetary policies were Automatic stablizers, and that they change automaticcaly according to the business cycle. So they are cyclical in that sense but affect the economy in a counter cyclical way; this is because in times of economic prosperity they automaticall reign in growth but in times of economic recession they promote growth

[Water]

I thought cyclical component of budgetary policies were Automatic stablizers, and that they change automaticcaly according to the business cycle. So they are cyclical in that sense but affect the economy in a counter cyclical way; this is because in times of economic prosperity they automaticall reign in growth but in times of economic recession they promote growth

Yes that, because the cyclical component is non discretionary.

[Hodgeyhodgey]

Identify and explain 2 important supply policies that might help minimise the impact of an ageing population.

I know one is immigration policy, but I can't think of another. Can someone please help?

[Hodgeyhodgey]

Sorry for the double post, but for some reason I edit my above post, save the changes and yet nothing happens.

What are the economic costs/threats posed by climate change for the Australian economy?

Also, what is the difference between the Carbon Tax and the CPRS?

Thanks!

[sam.utute]

Identify and explain 2 important supply policies that might help minimise the impact of an ageing population.

I know one is immigration policy, but I can't think of another. Can someone please help?

The examiners can only test you on content expressly stated in the study design. If you see the words "supply policies", go through each one you should know to see if it fits. In this case, as you have mentioned, immigration policy is the most appropriate response.
Now go through the remaining policies to see if they fit (Trade Lib or another MER, CPRS/Carbon Tax, Budgetary Policy).
The only possible answer is Budgetary policy. You need to discuss how the government can provide incentives for people to remain in the workforce (participation rate) and use discretionary measures to minimise the negative impacts of the ageing population (budget pressures, labour force etc.).

[Hodgeyhodgey]

Identify and explain 2 important supply policies that might help minimise the impact of an ageing population.

I know one is immigration policy, but I can't think of another. Can someone please help?

The examiners can only test you on content expressly stated in the study design. If you see the words "supply policies", go through each one you should know to see if it fits. In this case, as you have mentioned, immigration policy is the most appropriate response.
Now go through the remaining policies to see if they fit (Trade Lib or another MER, CPRS/Carbon Tax, Budgetary Policy).
The only possible answer is Budgetary policy. You need to discuss how the government can provide incentives for people to remain in the workforce (participation rate) and use discretionary measures to minimise the negative impacts of the ageing population (budget pressures, labour force etc.).

Thanks heaps Sam, that makes for a logical way to solve a question like this! Is there any chance you could also answer my other questions?

What are the economic costs/threats posed by climate change for the Australian economy?
Also, what is the difference between the Carbon Tax and the CPRS?

Thanks in advance, and I will be looking forward to the lecture for more help!

[Saur11]

For the costs of climate change it is easiest to discuss the problems associated with ignoring climate change; that is volatile weather, decreased food supply etc. then it is a matter of linking this through with GDP/AS/AD or whatever the questions demands.

I might not be right so you probably should check with someone else.

[chrisjb]

The Reserve Bank is likely to implement a tighter monetary policy setting if:
A. the value of the Australian dollar appreciates.
B. there is an increase in the skilled immigration program.
C. the federal government reduces the size of Budget surplus.
D. consumers are faced with water shortages.

I don't understand why the answer is C. I get that expansionary fiscal policy may add to inflationary pressures, but if the government is adopting an expansionary stance, chances are the economy is experiencing a downturn... which would result in more expansionary monetary policy. Did the RBA raise the cash rate when the we saw the massive budget deficits in 2008-9?

SO... faced with these options I argue that the answer should be D, because water shortages will add to costs of firms who need water to operate (which would be every firm to an extent) AND although this is a SUPPLY side problem that is out of the RBA's control, if we assume there is no other option to slow AS, slowing AD could alleviate some of the price pressures.

[Water]

A) If the Australian dollar appreciates, the RBA doesn't care, unless its an abnormal increase, it will intervene
B) Increase in skilled immigration Program = Healthy
C) A Less Budget Surplus = expansionary stance, will mean that there is a stimulation in the economy. Tighter Monetary Policy is possible, because the budget may perhaps be pro-cyclical in the future.

D) Consumers are faced with water shortages. This increases the cost for consumers. Unless the Water inflation is extremely high, the RBA Is unlikely to intervene. It is a volatile event and only affects consumers, not businesses. Example was severe droughts and the RBA did not increase cash rates because of these things. IT WILL intervene if there is a serious consequence to inflation as a whole.


= C is the only contractionary answer possible/ most likely

[Jdog]

monetary and budgetary are more often that not, compatible,

therefore when budgetary is contractionary, monetary will most likeley be contractionary

therefore C