Place for some essay marking?

[brenden]

Hi, I marked your essay. Although I don't know how good my marking was. I'm sorry that it is very critical, it wasn't a bad essay, just areas that I personally thought could be improved. I am by no means qualified to mark your essay so feel free to disregard any part of my criticism.

Describe the impacts of inflation on the Australian economy and the policies available to manage inflation.

Inflation, the general increase in the price of goods and services, Maybe use a verbatum definition as this looks better to a marker - e.g. inflation is defined as the sustained increase in the general level of prices over a period of time; commonly measued by changes in the consumer price index.was once describe by former US president Ronald Reagan as being ‘as violent as a mugger, as frightening as an armed robber, and as deadly as a hitman’. Quotes like this aren't necessary in an economics essay in the introduction; quotes or examples should really only be used to heighten your argument Overstatement perhaps "overstatement perhaps" is slightly colloquial but it is certain that the impacts of both high and negative inflation—deflation—are indeed deadly for an economy You are right in saying that high inflation and high deflation have consequences, however the question only states the impacts of inflation and a moderate level of inflation is necessary in the economy. In Australia and other developed nations, there are a range of policies which attempt to curb or stimulate inflation. At its current level of 1.3%, a March deflationary quarter pushed the RBA to reduce rates to 1.75% to spur an increase in aggregate demand and push inflation upwards.

An introduction is meant to give the marker an overview of what the essay is about, so maybe include the effects of inflation that you will be talking about and detail the policies that are available for governments to manage inflation.

Inflation can be caused in four key ways—Demand-pull, cost-push, imported inflation and via inflationary expectations. Demand-pull inflation, arguably the most common form of inflation Whilst it is good to know all this content, it is not required in this question; you could use it to strengthen a specific example of inflation's impact, refers to the situation where an increase in aggregate demand outpaces an increase in aggregate supply, and causes prices to rise. Due to the Howard governments tax cuts through the first decade of this century instead just give the year, a little colloquial, inflation peaked just before the GFC at 4.7% - a result of demand-pull inflation what exactly caused demand pull inflation? maybe give a CPI example as well. Conversely, cost-push inflation works from the opposite perspective - costs (often labour) increase, reducing the rate of growth in aggregate supply and increasing the general price level. Even inflationary expectations of the future can cause an increase in spending, as well as the cost of imports from other nations rising - or imported inflation. The last two explanations were very brief, need a bit more in order to show that you know what you are talking about in a clear and succinct manner, as well as this, this paragraph is not really necessary in terms of the question. The stats and examples you use can be used in later paragraphs to strengthen your argument though.

Currently, Australia’s inflation rate measured year-on-year is 1.3% and far below the RBA’s target of 2-3%. Weakness in demand in non-tradable items and low inflationary expectations were cited in the RBA’s forecasts for the -0.2% March Quarter. Economic growth at 3.1% almost double last quarter from 0.6% to 1.1%, which reflects a market response to low interest on loans—which boosts spending.
This is not incorrect, but there are limitations on the effectiveness of monetary at stimulating the economy. This is evident in the cash rate that has been significantly falling for quite a few months not and has not facilitated a significant increase in GDP growth
This trend analysis, whilst good is quite brief. Normally in a trend analysis, you would have and average, trends + reasons for trends, a high + reason for, low + reason for, current, forecast

Although increasing not increasing, high; as an increase from 1% inflation to 1.2% is still an increase, but won't have the same impacts inflation has largely negative implications for economies, almost all advanced nation’s encourage a little inflation in their economies. The most important reason is that inflation is a symptom of increased spending inflation is an indicator of demand for goods and services which drives economic growth in the short term through increases in AD; saying that it is a symptom of increased spending is common sense from your definition, and is also an incentive to borrow such that the repayments will be reduced in the long run.inflation erodes our real incomes and thus decreases our disposable income. People are less likely to take out loans if they have less money to repay loans with as they price to repay increases and the price of current loans increases. So this part is not quite right This is why deflation deflation is when the price of goods and services decreases, not when the inflation level falls, as occurred in the March quarter, is, as Regan put it: ‘as deadly as a hitman’. It reduces the economic incentive to spend, and thus grinds economies to a halt as credit becomes more expensive in the long run. Not necessarily, with deflation, the price of goods and services decreases, which means that consumers can purchase more goods and service and incentivises consumption and spending

Your structure could be a little better, the above paragraph should be on the effects of inflation?

However, inflation has far more negative impacts. Try to start your paragraphs with a topic sentence. For example, High inflation constrains economic growth and creates economic uncertainty negatively affecting sectors within the Australian economy. Facing high inflation, central banks have to increase interest rateswhen inflation occurs, the RBA will decrease the cash rate through DMO in an attempt to stimulate economic growth; this is meant to translate in a decrease in interest rates, reducing short run economic growth lest inflation increase. High inflation also tends to increase investment in non-productive assets could you please give an example and show a real example in the Australian economy where this happened and the effects of it?, as their nominal prices rise and generate wealth quickly - crowding out investment for real growth to occur. This has flow on effects for inequality, as driven by low unemployment, labour market conditions tighten and highly skilled workers are able to negotiate higher wages. As prices rise, Australia’s international competitiveness tankstanks is a bit of a colloquial word, maybe try something like Australia's international competitiveness falls as exports become more expensive, Might need to explain this a little more as this was quite a big leap - the balance of goods and services will fall into greater deficit as exports will decrease and domestic consumers look to cheaper foreign imports; therefore contributing to Australia's CADstraining the CAD and therefore dropping the dollarThis is a little colloquial, try using economic terms as is a part of the marking criteria. e.g. A loss of international competitiveness decreases the demand for Australian exports, this causes a decrease in the demand for the Australian dollar, resulting in a depreciation.. The net effect is, of course an increase in unemployment this might need a bit more explaining. The Phillips dictates that in times of high inflation, low unemployment occurs and vice versa and reduction in domestic spending. Due to below-average conditions in Australia currently, consumer sectors such as retail are being hit the most by the curbed demand You could strengthen this last part with a statistic of what the effects of 'curbed demand' are.

The RBA can manage inflation alongside the government with Monetary policy This topic sentence is good, but monetary policy is inherently the RBA's tool. It is not meant to be controlled or significantly influenced by the government. The cash rate, currently at 1.75% was dropped by the RBA last month to stimulate aggregate demand and soak up the spare capacity that is left of the mining boomIt may be best to outline theoretically how monetary policy is used to address inflation and then use real life examples of changes in the cash rate and their effects on inflation levels. A drop in the cash rate decreases the servicing costs on loans and allows new loans to be created with low repayments, causing spending to rise This is a good explanation, just include how consumers have more real disposable incomes which allows them to purchase more goods and services. Due to all other major developed nationOECD nations is a more sophisticated word to use have cash rates lower than Australia’s currently, the Australian dollar has been attractive to investors which has sparked a rallying of the dollar as lateThis is quite colloquial - use economic terms like caused an appreciation of the Australian dollar. This could be enhanced by giving an example of when this happened and what the exchange rate peaked at. Although the increase in the dollar reduces imported inflation This bit just needs a brief explanation as to how an appreciation reduces imported inflation. It'll make the marker know that you know what you're talking about if you don't jump to conclusions and assumptions without explaining them., it is a by-product of increasing domestic aggregate demand and thus increasing domestic demand-push inflation. This is a good paragraph, but you should start getting into the habit of having a short linking sentence at the end that sums up your paragraph and links back to the question. This will just ensure that the question is always at the forefront of your mind so you only write about what the question is asking you.

The government can manage inflation using Fiscal policy. The forecast 2016/17 budget deficit of $37.1b is an expansionary budget Just a tip that this year's budget is mildly contractionary as it is a decrease from last year's $39.8b budget deficitwhich injects more into the economy than it receives in taxation revenue When E>T a budget surplus for that year is created, the stance is derived from the previous budget. Thus the gap in funds is borrowed from overseas or the Australian public. The deficit attempts to stimulate spending via public investment into infrastructure and reduce the supply capacity constraints that have plagued Australia’s growth (although due to weak demand these have not been an issue) This theory is good but you need to explain how increased expenditure into infrastructure will address inflation - unemployment --> disposable incomes --> consumption --> increased inflation etc., corporation tax cut from 30% to 27.5% as well as a reformed unemployment scheme through the Activity Test which will push more into jobs and thus further increase spending—more than proportionally due to the multiplier effect How is this greater than the multiplier effect?. In tandem with the RBA, both public sectors are pushing for a stimulus in aggregate demand and a steady increase in long run inflation. This is quite interesting as normally governments seek to decrease inflationary pressure as high inflation is much worse than low inflation

The government may also choose to manage inflation through microeconomic reform—with the aim to increase aggregate supply. Good topic sentenceReductions in unilateral protection since Whitlam in 1973 and the floating of the dollar exactly a decade later gave back the control of the main costs of the economy to the market - intending to increase the rate of aggregate supply It might be a good idea to give the outcomes of these reforms and how they impacted inflation and pull down inflation. However, due to weak demand, slow growth in aggregate supply—which is picking up due to mining investment project completion—has not resulted in a blow out in inflation Not too sure what you mean here; but what I do know is that an increase in aggregate supply will decrease inflationary pressures - keynesian theory and AD AS model. Poor global conditions You need to substantiate this with a statistic, some could argue global conditions have been quite favourable since GWP increased from 3.4% in 2012 to 3.6% 2016 and China - Australia's main trading partner - has had a 6.5-7% annual growth ratehave also ensured that inflation was weak. Moving forward with accommodative cash rates in all major economies - the question of demand-pull inflation is as salient as ever. I don't think that this last sentence is necessary; instead substitute it with a linking sentence that sums up how fiscal policy can be used to manage inflation

Inflation refers to the general increase in the price level of an economy, and in Australia recently—at 1.3%—inflation is simply too low and reflects weak domestic demand Whilst 1.3% is low now; 2-3% is the RBA's inflationary target over the business cycle so this figure is quite acceptable and is not causing much worry. Low inflation has many negative impacts for economies, but a small level of inflation is an essential condition for a growing economy. Through monetary policy, the government budget fiscal policy is the proper term, the budget is just the way fiscal policy is implemented and the coordination of microeconomic reform.

You may need to take different direction on this essay, low inflation is quite good as all policies are directed to "sustain low inflation."This is because low inflation removes distortion to investment and savings, benefitting firms and consumers. Instead look at the effects of inflation and high inflation on the economy. As well as policies used to address inflation. You can still use the parts you have on stimulating inflation as this is an inherent part of managing inflation. But also include ways that it can decrease inflation as this has historically been of greater priority.
Overall, the main things are topic sentences, linking sentences, trend analysis and use examples and statistics to support your argument

Good job though, sorry for the harshness. Disregard any part of my criticism you think is not relevant to your essay

Can we pls shower this fellow in +1s

[Spencerr]

Hey sorry, I didn't dispute the credit bit - the real value of debt does increase and assets like houses decrease in value meaning debt cannot be backed by the same collateral - so you need to further explain why credit becomes more expensive (not just deflationary expectations as it is unrealistic to expect deflation to continuously occur without government intervention.)

In the essay, I only disputed the spending bit; however I don't fully agree with the spending in the long-term - here's why.

Consumers will spend more in the short term as there is no way of knowing that deflation will continue and won't delay purchases. However if for some reason they knew that deflation would continue, short-term or long-term spending increase is dependant on a few variables including price elasticity of goods and services, current global and domestic economic conditions, interest rates. In saying that, deflation creates unemployment, which will constrict economic growth levels and decrease national income over a period of time, and thus decrease consumption in the long term.

This is a classic case of theory versus reality, in theory what oliver mentioned is correct, that deflation will lead to reductions in consumption in the short term, however in practice there is no way of knowing prices wont be low even further, so they won't delay purcahses. Although it might be relevant to mention the few variables, it would be a good idea to consider things in certeris paribus, otherwise there would be no way to write any economics essay.!
for more on deflation, just look at what happened to japan!