HELP ME! - a few questions (1 Viewer)

[bradical]

Briefly explain how the Reserve Bank could intervene in the foreign exchange
market to influence the exchange rate of the $A.

Discuss TWO economic benefits to Australia of an appreciation of the $A.

Explain ONE economic and ONE social cost created by unemployment.

simple multiplier - how do u do it?

Define the term inflation.

Outline TWO causes of inflation.

Explain TWO government economic policies that could reduce the rate of inflation in an economy.

 

[monkey187]

hmm lets see

the RBA can interviene through 'dirtying the float' eg buying and seeling $A influencing supply or demand controling the price
and through moneyary policy eg increase in intrest rates will attract financial in flows increasing demand for $A rasing the value of the $A

Benefits include
cheaper imports
easier to service foriegn debt, reducing 'real cost' of Net Income
easier to repay actual foreign debt
foreign equities become more valuable reducing foreign liabilities

Unemployment
economic cost = opportunity cost of unemployed not creating output causing economy not to use its resources to maximum capacity
govt recieves less revenue from tax and has to pay more in welfare forcing it to use its money in a less efficent way
social costs = drug + alcohol abuse, family breakup, depression and so forth

simple multipler = 1/1-MPC (marganal propensity to consume) or 1/MPS (1-MPC = MPS)
so you work out for every $ of additional incom a economy or family recieves what 0.? they spend and what 0.? they consume

inflation is consistant rising of prices

causes of inflation =
demand-pull - excessive demand
cost-push - excessive wage rises

govt policies to reduce inflation =
monetary policy = !! thats its major use
fiscal policy buy reducing economic growth (contractionary policy) there for reducing spending and inflation

please correct me if im wrong

 

[meh]

1. Briefly explain how the Reserve Bank could intervene in the foreign exchange
market to influence the exchange rate of the $A.

Answer: the RBA could intervene through Dirting the Float or through Interest Rates. It could dirty the float by being a buyer and seller of $A - if it sold $a there would surplus of $A out there, causing a depreciation = the opposite if the RBA want the $A to appreciate
It could also change interest rates (although really highly unlikely) - if RBA pushes interest rate up it attracts more investment ir demand for $A, causing an appreciation and vice versa

2. Discuss TWO economic benefits to Australia of an appreciation of the $A.

this should be in your text book which one do you use? a) the foreign debt would be reduced (reverse of the valuation effect) because 1 aussie dollar would buy more foreign ones and b) inflation pressures would be reduced because the imports wouldn't be so expensive as per the heightened dollar

3. Explain ONE economic and ONE social cost created by unemployment.

Economic Cost - opportunity cost of what may have been produced if those who are unemployed would be employed. Could also say a billion things here, including cost to the gov, lower wage growth etc
Social Cost - greater inequality. Those people who are unemployed begin to lag further and further behind those who are working, financially (could also say problems associated with poverty like crime for this one)

4. simple multiplier - how do u do it?

ok this one trick people. You are usualy either given MPC or MPS
the simple multiplier is k=1/MPS or k=1/1-MPC. You are also given an initial investment, and since the multiplier calculates the amount of times the national income exceeds the initial investment that caused it - you multiply 'k' (whatever you have as your MPS/MPC) by the initial investment.

For example - if MPS is 0.2 and initial investment is $10 000

your k is 1/MPS = 1/0.2 = 5

so your answer would be 5 multiplied by 10 000 = 50 000

5.Define the term inflation.

INflation is the sustained increase in the general level of prices measured by changes in the Consumer Price Index (CPI)

6. Outline TWO causes of inflation.

a) demand-pull = When aggregate demand (spending) exceeds the productive capacity of the economy, prices rise as output cannot expand any further
Consumers force the prices up by bidding against each other for limited goods/services
b) cost-push = When costs of production rise = businesses pass them on to consumers by raising prices of their products to maintain profitability
One of the main causes of cost-push inflation is increases in wages

7. Explain TWO government economic policies that could reduce the rate of inflation in an economy.

Well, without going to intricate detail about the policies - because this question is essentialy a section 3 essay type question, your two best policies are Monetary Policy and Micro Reform

Monetary Policy - using interest rates to pursue price stability, full employment and sustainable economic growth
So if inflation is high - Monetary poicy approach would entail raising interest rates to dampen demand and vice versa

Micro reform and structural change is also significant because it changes the pattern of production to more efficient allocation of resources. Important to mention labour market reforms and deregulation which are part of micro. You need to go through in much more detail how these policies are employed to control inflation.

Hope this helps a bit. Good LUck.

Anna

 

[saves.the.day]

My turn!

Briefly explain how the Reserve Bank could intervene in the foreign exchange
market to influence the exchange rate of the $A.
The RBA could increase interest rates relative to other countries, affecting the interest rate differential. If the differential is high when interest rates are increased in Australia by the RBA, then this attracts lots of foriegn investment in the form of savings into Australia by investors wishing to maximize their returns. This demands Australian currency, causing the supply to decrease, appreciating the Austrlaian currency. The converse is also true, a lower interest rate will cause domestic investors to borrow from other countries, say Eurpoe or USA where interest rates are 1% and 2% and this will cause dollars to be dumped, increasing the supply of Australian dollars and depreciating the Austrlaian currency.

Discuss TWO economic benefits to Australia of an appreciation of the $A.
An appreciated currency means that domestic consumers do not nead to outlay as much money for the purchase of goods and services. For industry, this could mean cheaper raw material or input costs, causing the industry to become more efficient, allowing them to exploit any 'economies of scale' that they may now hold. In effect, this will result in higher production and higher GDP resulting in economic growth. However, this would mean that Australian's demand foriegn currency, causing the CAD to initially worsen.

A second benefit is the valuation effect. Since the CAD is measured in comparison to other nations' currency, any appreciation of the Austrlaian dollar would decrease the Austrlian dollar value of the CAD as less Australian dollars would be needed to outlay a purchase of foriegn currency.

Explain ONE economic and ONE social cost created by unemployment.
Economic cost created by unemployment is lower levels of economic growth. As unemployment increases, the level of disposable income decreases, resulting in lower levels of aggregate demand. As demand falls, production will fall resulting in lower levels of output and economic growth.

A social cost is lower levels of morale among people. I'm sure you could work this one out yourself.

simple multiplier - how do u do it?
important
No one has told you the other way BOS tests multiplier. Sometimes you are given a table with only consumption for each year and income for each year of people. To work out MPS from such a table you just use MPS=(change in consumption)/(change in income)

Then you just put k=1/mps or k=1/(1-mpc)

So you'd get a number for "k" for example and this number tells you how many times an increase in aggregate demand or expenditure will affect the economy. So you multiply k by any investment to find out the multiplied effect of this investment on the economy.

The reason how this works is simple. If the MPC of a country is 0.8 and the MPS is therefore 0.2

Well what happens if someone buys something worth $100? well because we know mps and mpc, $80 will be consumed by the public and $20 will be saved. The out of this $80 we know that it will be consumed so it gets pumped back into the economy and out of this $80, (0.8 * $80) will be consumed and (0.2 * $80) will be saved until there is no more left. So as you can see, this $100 investment into the economy had a multiplied effect.

Define the term inflation.
The sustained increase in prices over a given period of time measured through percentage changes in the CPI. The CPI is an index that measures the financial cost of a basket of goods and services, each given a specific weighting.

Outline TWO causes of inflation.
Imported inflation: inflated world prices would have the same effect as domestic inflation. This could be a result of a depreciated currency, so individuals have to outlay more money to import goods and services. Since the CPI measures a basket of goods in Austrlaian dollar value, this will increase the CPI
Demand pull: As demand increases in the economy, the econonmy's demand may exceed its productive supply. When this happens, individuals will be forced to bid for the limited number of goods and services remaining, resulting in higher prices, and inflation.

Explain TWO government economic policies that could reduce the rate of inflation in an economy.
Tight monetary policy: this is higher interest rates, which increase the repayments for those with a loan and does not make a loan attractive for those considering one. The effect is less disposable income which leads to damened demand and therefore lower inflation of the demand pull nature.

Contractionary fiscal policy is when government expenditure is exceeded by government taxation. The effect of this is leakages are greater than injections, having a contractionary effect on demand. As demand falls, the problem of demand pull inflation will be alleviated.

Hope that helps,

Good Luck with HSC.

 

[meh]

heheh good revision, i liked it!

 

[Exeter]

someones been lookin at the past papers!