1. In the Statement on Monetary Policy February 2018 (RBA-SMP-2018) the RBA suggests that "Fiscal multipliers estimate the total effect of a change in public investment on GDP, relative to the size of the initial increase in public demand. The Organisation for Economic Co-operation and Development (OECD) estimates that an increase in public infrastructure investment in Australia is associated with a fiscal multiplier of between 1.1 and 1.3 after two years."

Explain, in the context of the simple Keynesian model (draw a graph), the principle of the multiplier effect and then, in the context of the IS-LM model (draw a graph), discuss what factors might affect the size of the fiscal multiplier and the degree of crowding out. If the OECD's estimate is reasonable, what would sort of values would you expect the fiscal multiplier for a change in social welfare spending to take and why?

Useful to this question:

https://www.rba.gov.au/publications/smp/2018/feb/box-c-spillovers-from-public-investment.html

2. In a speech Achieving Full Employment on 20th June 2023, Michele Bullock, Deputy Governor (and now Governor designate) of the RBA, said, "The unemployment rate is expected to rise to 4 per cent by late 2024 ... While 4 per cent is higher than the current rate, this outcome would still leave us below where it was pre-pandemic and not far off some estimates of where the NAIRU might currently be. In other words, the economy would be closer to a sustainable balance point." These remarks attracted some adverse commentary, including from opposite ends of the political spectrum; see, for example, Australian central banker openly calls for higher unemployment (World Socialist website) and About 140k workers to lose jobs as RBA battles inflation (Australian Financial Review).

In the context of the expectations-augmented Phillips Curve (draw a graph) and the dual (or is it triple) mandate of the RBA (draw a graph), explain why Deputy Governor Bullock seems to be so accepting of higher unemployment. Useful to this question:

https://www.rba.gov.au/speeches/2023/sp-dg-2023-06-20.html

https://www.wsws.org/en/articles/2023/06/26/mqkb-j26.html

https://www.afr.com/policy/economy/inflation-matching-pay-rises-will-force-more-rate-rises-warns-rba-20230620-p5dhy4