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Transcript of VCE Economics
www.rba.gov.au for transmission mechanisms, charts, speeches
www.budget.gov.au -the Budget
www.vcaa.com.au for past exams and examiners reports
www.abs.gov.au for up–to-date statistics and MAP
www.nicholsoncartoons.com.au where you can search by topic
www.abc.net.au - watch the news!
www.economist.com for a broader perspective on issues
www.theage.com.au and search for Ross Gittins’ articles
www.khanacademy.org/ for online video tutorials
Top Ten Websites
Top Ten Exam Tips
Answer the question!
Use short sentences.
Do not use dot-points.
Be clear and accurate in the way you use economic terminology.
Use detail to demonstrate your knowledge
Only use widely accepted abbreviations:
GDP, CAD, NFD, CPI, AD, AS, AUD, RBA
Consider mark allocation when deciding how to structure your answer.
Underline the ACTION WORDS in the question – what do the words ask you to do? Explain, outline, differentiate?
Although not a rule, it is a good idea to begin longer responses with a brief definition of the key concept.
Read and think carefully about any stimulus material provided and refer to this material in your answer. This is often a hint to the answer!
Use current Australian examples to illustrate your answer.
Measures of overall living standards include quantitative economic measures (GDP per capita) and add other qualitity of life measures such as crime rates, biodiversity and health.
The UN HDI includes health, wealth and education elements...
Quality of life
Quantity of Good & Services
Economic growth occurs when there is an increase in the volume of final goods & services produced in an economy over a period of time.
Real GDP growth (% change Y0Y) is the best indicator of economic growth.
We aim for strong & sustainable economic growth.
There is no firm target though textbooks say 3-4%.
Growth has been the focus of economic policy since the GFC, with the ultimate aim to protect full employment.
Economically: Without volatility
Environmentally: Without environmental degradation
High enough to protect full employment
Not too high as to endanger the CAD or CPI
Full employment is really about efficiency in labour resource allocation.
Full employment is a situation in which all of those people who are both willing and able to find work, can.
We do not aim for 0% unemployment. In fact, Phillips’ theory suggests there is a trade-off between low unemployment and inflation.
As a result, the goal for full employment is to maintain the 'natural rate' an unemployment rate that is as close as possible to the NAIRU or ~4-5%
At NAIRU no cyclical unemployment exists.
Many predicted unemployment to peak at more than 8% in 2010.
It is said” Unemployment goes up the lift and down the stairs.”
This was predominantly caused by cyclical demand factors such as weak overseas demand & domestic demand as a result of the GFC.
Unemployment is at 6.1% for March 2015, and rising slowly.
Inflation is a scenario in which general prices rise due to cost pressures or demand outstripping supply.
Low Inflation refers to the government’s goal of maintaining CPI between the RBA’s target band of 2-3% over the medium term.
The ABS Consumer Price Index is the best measure.
Remember there is;
COST INFLATION - caused by AS conditions
and DEMAND INFLATION - caused by AD conditions
Latest CPI is 1.3%, well below the RBA target band.
External Stability relies on Australia’s ability to meet its international financial obligations and requires:
A stable and competitive exchange rate
A small Current Account Deficit (less than 4% of GDP)
Serviceable Net Foreign Debt (less than 40% of GDP)
We aim for to eliminate absolute poverty and ensure a fair and equitable distribution of the nation’s income.
We aim for EQUITY, NOT EQUALITY
Australia has little absolute poverty except in remote rural areas, indigenous communities and amongst long term unemployed persons.
The budget’s progressive tax and welfare system is the main tool for improving equity – think of Robin Hood!
The ABS ranks all income earners, splits them up into quintiles and comes up with a number to represent the degree of inequality; the Gini coefficient.
A coefficient of 0.0 means absolute equity
A coefficient of 1.0 means absolute inequity
It is calculated by measuring the area between the diagonal line of total equality and the actual line, the Lorenz curve.
The Gini gets smaller the more the government intervenes with progressive taxes and social wages.
The Gini has worsened over the last decade, and continues to
VCE Economics 2015
Aggregate Demand Policy
Aggregate Supply Policy
Labour Market Reform
Quantity of Goods & Services
Prices are those paid in world markets – Australia is a price taker, not a price maker.
These prices fluctuate due to the global forces of supply and demand.
The terms of trade are a measure of export prices relative to import prices for a basket of good and services we buy and sell.
It represents the volume of imports 100 units of exports can buy.
Each nation has a different basket based on their composition of trade.
A change in the ToT may be due to Px or Pm.
Above 100 = Favourable
Below 100 = Unfavourable
Terms of Trade
Px/Pm = 120/80
Px/Pm = 80/120