Economics Questions Thread

[chasej]

Question: Explain how an increase in public sector savings can lead to a corresponding reduction in private savings?  (3 marks)



Would the answer to this be that the increase in public savings would add to the pool of national savings causing the private sector to be crowded in and therefore borrow and spend more?

SAC TOMORROW :O

[Sebby]

Not 100% sure if this is right, this is just what i think.

An increase in public sector savings would mean the government is not spending/financing the budget as much, meaning that they are not taking funds from the Australian people/banks. As such, there would be more supply in the cash market for the economy, and as such (from monetary policy knowledge), there would be downward pressure on the interest rates. A reduction in interest rates would encourage people to spend and buy goods and services due to having more discretionary income (income less tax and interest rates) from the transmission channels. Thus, private consumers and businesses spend/buy more and thus save less.

I assumed this was the answer due to my knowledge that an increase in government spending (generally from an expansionary budgetary policy or a need to fund the budget deficit) leads to greater competition for public funds (reduced cash supply in the cash market) . Thus interest rates rise and the effect of "crowding out" (where private businesses become discouraged to invest due to higher interest rates) begins to kick in. So i just applied the opposite effects of everything in the scenario that the government spends less (as your question implies, i.e greater savings).

Hope this helps, and if someone could confirm the validity of the statement that would be cool.

[abcdqdxD]

Not 100% sure if this is right, this is just what i think.

An increase in public sector savings would mean the government is not spending/financing the budget as much, meaning that they are not taking funds from the Australian people/banks. As such, there would be more supply in the cash market for the economy, and as such (from monetary policy knowledge), there would be downward pressure on the interest rates. A reduction in interest rates would encourage people to spend and buy goods and services due to having more discretionary income (income less tax and interest rates) from the transmission channels. Thus, private consumers and businesses spend/buy more and thus save less.

I assumed this was the answer due to my knowledge that an increase in government spending (generally from an expansionary budgetary policy or a need to fund the budget deficit) leads to greater competition for public funds (reduced cash supply in the cash market) . Thus interest rates rise and the effect of "crowding out" (where private businesses become discouraged to invest due to higher interest rates) begins to kick in. So i just applied the opposite effects of everything in the scenario that the government spends less (as your question implies, i.e greater savings).

Hope this helps, and if someone could confirm the validity of the statement that would be cool.

^50 economics right there

[p.taaa]

Greater public savings will decrease the supply of credit in the short term money market. This is because private sector savings are transferred into public sector savings, hence an increase in government saving will decrease private sector savings

hope this helps!

seb, that only occurs if the government repays private debt, not saving with the RBA (pg 180, economics down under)

[Sebby]

Greater public savings will decrease the supply of credit in the short term money market. This is because private sector savings are transferred into public sector savings, hence an increase in government saving will decrease private sector savings

hope this helps!

seb, that only occurs if the government repays private debt, not saving with the RBA (pg 180, economics down under)

Fair call Peter! Re-reading my post i did jump the gun assuming the gov repays private debt (and the opposite effect blah), could you just explain your point a bit more like how the private sector savings are being transferred into public saving and about the effects of the gov saving with the RBA.

[p.taaa]

yeah, i sort of jumped to that assumption as well, but re-reading the book i saw i was wrong, but if the government repays debt then i guess thats no longer savings

i believe that the government has something called a 'Official public account' which is used by the government to meet obligations. This is treated as private sector savings, not sure why though. when surpluses are not needed, balances of the OFA are transferred into the RBA in the form of term deposits/ money market investments. When the money is needed again to fund deficits, then they can be redeemed.

[Kilik]

Is there any notes that could help me on Economics Unit 2 SAC 1?
we are focusing on employment and population.

[millie96]

How difficult is economics 3/4? If i am ok at the 1/2, (about b+ average), do you think it would be ok? I get this is not much information to go off... just really wondering how difficult you guys find it in comparison to other subjects.

[vceishard]

I would recommend that you don't do it. Its the most painstaking subject apart from History Revs, but do as you wish! Its pretty useless... unless your going into public relations, commerce or are becoming a politician then its pretty useless. Wishing I was one of those dumb kids who didn't over think the government too much. I cant be bothered changing the world. VOTE FOR LABOR (is what my teacher always says lol... thinking they are brain washing me... its ok thou, I have a brain that can at least tell me the most basic thing in the world... 'don't vote labor' ha.)

[abcdqdxD]

Well I'm a bit biased here. I think eco is a great subject. 3/4 is just an extension of 1/2 knowledge. You'll also find that most of Unit 3 has been covered in Year 11 so its quite chill early on. Best to talk to your teacher

[chasej]

How difficult is economics 3/4? If i am ok at the 1/2, (about b+ average), do you think it would be ok? I get this is not much information to go off... just really wondering how difficult you guys find it in comparison to other subjects.

Unit 3 is more or less the same as 1/2. Somewhere around 65% or so of Unit 3 you would likely already know from 1/2 if you worked relatively well in the 1/2. And the bits of Unit 3 you wouldn't already know just build slightly on the stuff you already know. *There are some challenging parts of Unit 3 though, quite a few people need to spend some extra time on External Stability and Equity, before they feel comfortable with it, but then again there's hard bits in every subject pretty much.

Unit 4 again builds on Unit 3 and in fact Unit 4 exam questions often relate back to stuff you learnt in Unit 3, simply due to the nature of economics of everything linking together.

I assume you would study more/harder for a 3/4 than a 1/2 so if you are getting B+ at 1/2, I can't see why with a little extra study you couldn't be able to pull A/A+'s in 3/4.

Don't be fooled though eco isn't an easy subject nor is it a very hard one. If you put in the hard work, you would get the marks.

I would recommend that you don't do it. Its the most painstaking subject apart from History Revs, but do as you wish! Its pretty useless... unless your going into public relations, commerce or are becoming a politician then its pretty useless. Wishing I was one of those dumb kids who didn't over think the government too much. I cant be bothered changing the world. VOTE FOR LABOR (is what my teacher always says lol... thinking they are brain washing me... its ok thou, I have a brain that can at least tell me the most basic thing in the world... 'don't vote labor' ha.)

I disagree. Economics is useful for a plethora of things and can vastly improve your knowledge of many political/social issues. The rest of your post just goes of on a tangent which is probably more appropriate in the water cooler so I won't even bother.

[abcdqdxD]

Can someone explain the idea of "Dynamic efficiency".

I know the definition is "the ability to innovate and adapt the allocation of resources based on the current economic environment" but I don't really understand the idea all that well.

A common example of dynamic efficiency is using the latest technology, what are some other examples?

Thanks

[LazyZombie]

Can someone explain the idea of "Dynamic efficiency".

I know the definition is "the ability to innovate and adapt the allocation of resources based on the current economic environment" but I don't really understand the idea all that well.

A common example of dynamic efficiency is using the latest technology, what are some other examples?

Thanks

I don't know if this will help but -
From what I gather, an example of dynamic efficiency is the ability of a company to adapt to change, and to be flexible in order to keep up with the market or risk falling behind - technology is the best example. The company will often need to consider long term goals in conjunction with short term goals by investing etc in order to do this.
For example, kodak went from dominating the photography market to having to file for bankruptcy recently.
Also another example is myspace dying out once facebook 'revolutionised' the social media platform. (lack of a better term)
Dynamic efficiency I think is also related to how quickly an economy can reallocate its resources from one sector to another, if there was a need to. E.g. moving resources from manufacturing to services and considering how quickly people can be retrained and if the capital can be used in the other sector directly.

tldr how companies and the economy in general copes with change.
I have that written in my notes, anyhow


An irrelevant question - if an economy goes from positive to negative rates of growth (in an analysis question) would it be correct to say that 'the rate of economic growth decreased from e.g. 1% to -4.3%"?

[chasej]

An irrelevant question - if an economy goes from positive to negative rates of growth (in an analysis question) would it be correct to say that 'the rate of economic growth decreased from e.g. 1% to -4.3%"?

Doubt you would lose marks for saying it like that but it does sound better to say "economic growth fell from 1% to a negative growth rate of 4.3%".

Because -4.3%, isn't really economic growth but, is negative economic growth.

[LazyZombie]

Doubt you would lose marks for saying it like that but it does sound better to say "economic growth fell from 1% to a negative growth rate of 4.3%".

Because -4.3%, isn't really economic growth but, is negative economic growth.

thanks! I knew it was technically wrong, I just wasn't sure how to phrase it. I feel like half the battle is just phrasing my answers correctly.