-4assa:412 Marks Q1-A: The table shows data for the Hypothetical Australian economy in 2023. Calculate the following from the given data. Items Billions of $ Australian Consumption expenditure $1000 Investment $200 Government outlays $400 Exports $300 Imports $150 Transfer Payments $200 (i) Define and calculate net exports from the given data. Is there a trade surplus or trade deficit? (2 marks) (ii) Calculate Gross National Expenditure. (1 mark) (iii) Calculate GDP in Australia using the expenditure approach (2 marks) Q1-B: Suppose that a very simple economy produces three goods: pizzas, haircuts, and backpacks. The quantities produced and their corresponding prices for 2017 and 2023 are shown in the table: 2017 2023 Product Quantity Price Quantity Price Pizzas 100 10 120 12 Haircuts 50 15 45 20 Backpacks 200 40 210 45 Use the information to compute real GDP in the years 2017 and 2023. (i) Calculate real GDP in 2023, taking 2017 as the base year (2.5 marks). (ii) Calculate real GDP in 2017, taking 2023 as the base year (2.5 marks). (iii) Are the calculations different? Explain why? (2 marks) Hint: When 2017 is the base year, real GDP for 2023 is found by multiplying 2017 prices by 2023 quantities and then adding the values up.....8 Marks Q2-A The following table illustrates the hypothetical example of value added in the production of a woollen cardigan at each stage of production and calculate the following. (i) Define value added. Explain why value-added method is used rather than the total value of sales. (2 marks) (ii) What is the value added by each stage of production? Show in the third column. (2 marks) Stage of Production Value of Sales ($) Value Added ($) Rearing sheep 2.00 Shearing wool 3.70 Washing 5.60 Dyeing 9.00 Making woollen balls 13.40 Knitting garment 20.50 Finishing-packaging 25.50 Wholesale 30.00 Retail sales 40.00 Total value Q2-B: The following table shows the hourly output per worker in two industries in Brazil and Chile. Output Per Hour of Work Hats |Beer (barrels) Chile 8 Brazil 2 Explain which country has an absolute advantage in the production of hats and which country has an absolute advantage in the production of beer. (2 marks) (ii) Explain which country has a comparative advantage in the production of hats and which country has a comparative advantage in the production of beer. (2 marks)Part B Essay Question = 30 marks Task description: In this task, you will write an essay based on the article: RBA decision April 2024. provided on page 3 of this task sheet (along with the link). Guiding questions, found on page 4 of this task sheet will help you structure your response when building the case. Do not forget to apply the DADA framework, using data and graphs to support your response. A marking rubric is posted on the Moodle site, which can help you understand what is required to reach your desired level of achievement. Note: You will have to do research for this assignment to find some secondary data, tables and graphs from the ABS and RBA websites related to GDP, unemployment, inflation, exchange rates, interest rates and their impact on consumption demand, commodity prices, business investment and the housing market. You will need to include this research in your case study. Suggested way to approach the task.1. Get a good understanding of macroeconomic objectives, unemployment, inflation, the role of money, monetary policy, interest rates, the Reserve Bank of Australia (RBA), and economic growth from course resources. Refer to relevant chapters from the set textbook and other economics textbooks for theory. You also need to refer to other on-line articles and news items related to the case study. Draw on the work you have done at home or during workshop session solving the weekly textbook-boxed case studies as these will help you learn to think like an economist. 2. Read and take notes about the article RBA decision on page 3 of this task sheet. 3. Look at the guiding questions on page 4 of this task sheet. These will help you apply the theory to a real-life monetary policy example of economics at work. 4. Conduct research (find related articles and search the RBA website) relevant to the current situation in the Australian economy and the RBA's role, function and conduct of monetary policy to keep inflation within the target rate. Find tables and graphs that show the current levels of inflation, interest rates, and money supply and the relationship between inflation, investment, GDP, and interest rate, and use these to draw conclusions and justify your answers. 5. Read the 'How to Write Essays in Economics' guide available in the Assessment section of the Moodle site as this will help you adopt the appropriate writing style for your case study. Your assignment should have an 'Introductory' paragraph regarding the case and respond to the five (5) questions located on page 4 of this task sheet within 5 body paragraphs. Be sure to connect the paragraphs with tables and graphs and have a final concluding paragraph. Be sure you fully respond to each of the guiding questions, which are provided to give you direction when writing and building the case study. Drawing on your research and notes about RBA decision, apply the DADA framework while answering cach of the questions ( Definitions: define the key terms; Assumptions: list or make assumptions as required; Diagrams: draw relevant graphs/tables and explain; and Analysis: apply the theory to real life economic examples and explain to justify your answer). Remember: a. Concepts and key terms must be defined accurately and completely. b. The assumptions upon which the analysis is based must be stated at the outset. c. Diagrams must be drawn properly and correctly labelled, explaining the relationships they depict. d. Analysis overall should be provided by relating economic theory to how interest rate decisions are made and their impact on real-life economics. 8. Review your draft case study against the marking rubric (located in the assessment section of the Moodle site) to be sure that you have addressed all key criteria. Make sure you have focused on the key macroeconomic objectives and applied macroeconomic concepts and theory to the role of money, banking, inflation, interest rates and the functions of the Reserve Bank of Australia. 9. Sources must be acknowledged using APA referencing style. Make sure you include in-text references to acknowledge others' work and provide a reference list.Important Background Reading RBA Monetary Policy Background Information hitp: 'www rba cov an The board of directors of RBA and Michele Bullock as Governor of the Reserve Bank of Australia meet to make monetary policy decision. And the media statement is released on the 3 Tuesday of the month (at the RBA in Martin Place, Sydney. Prior to the meeting. board members are provided with amalysis of the economy and the financial markets by the RBA staff. Among these analyses are the bank's forecasts of fubare inflation, as well as the likely future path of cconomic growth overseas and domestically. RBA monetary policy decisions are based on these analyses as well as a range of other macrocconomic assumptions. In addition, scenarios are provided as to the likely macroeconomic outcomes if monetary policy was adjusted. The RBA meeting occurs on the first Teesday of each month. After much discussion, a consensus decision is reached as to whether to leave the official interest rate unchanged or changed. Thercafter, the RBA Govemor announces its decision and, if a rate adjustment is made, banks will potentially make changes to their interest rates the following day. The RBA does not set this interest rate (as the commercial bank sets its mortgage rate), but it continuously influences the rate through its daily financial operations i the money markets. 1f the RBA buys Treasury notes, the supply of excess reserves in the banking system increases and the cash rate falls. If the RBA sells Treasury notes, the supply of excess reserves in the banking system decreases and the cash rate increases. Because of these changes in the cash rate, imterest rates in general are influenced. In May-20135, RBA cut the official interest rate to 2.0 percent, which remained unchanged for a year. In May-2016, RBA govemaor announced a cut in cash rate by (L25 basis point, to 1.75 percent, which remained unchanged until Aungust-2016. The official cash rate since August-2016 has been at the historical low of 1.50 percent. In 2020 Covid-19 started the cash rate reached 0.5 %, as the economy was slowing down with high unemployed 7.5%, fall in GDP by -7 and low inflation of -3, the economy was technically in COVID- 19 driven recession by the 2" Quarter of 2020. In 2021 December, the official cash rate was 10 basis point, with inflation at 2.1% lose to the target range of 2-3%. As the economy recovered with opening borders, trade, travel and vaccine discovery, the cash rate increased from 2.5% in Nov-2022 to 3.10% in Dec-2022, and inflation increased up to 6.9%, with unemployment falling to 3.4%. From June to Oct-2023 cash rate remained at 4.10% and in November-2023 with inflation rising due to Russia- Ukraine war, RBA increased the cash rate to 4.35%. Since Nov-2023 until April-2024 cash rate is at 4.35%, and the aim is to bring inflation down within the target rate of 2-3%. Focus reading- Media Release Statement by the RBA Governor: Monetary Policy Decision Date https://www.rba.gov.au/media-releases/2024/mr-24-05.html Suggested structure and guiding questions to write your Essay. Introduction: Provide an introduction about Reserve Bank of Australia (RBS) monetary policy. Question 1: Explain the main objectives of RBA's monetary policy. Also list and describe the main functions of money and the functions of the Reserve Bank of Australia. Question 2: Why does the RBA, takes into consideration the global macroeconomic indicators of major economics and trading partners like China, Japan, South Korea, India, and USA, and the implications of the conflicts in Ukraine and the Middle East? Further, RBA also considers the domestic macroeconomic indicators (GDP, inflation, unemployment, and exchange rate) while making a monetary policy decision whether to change (increase or decrease) or keep the official cash rate unchanged? Explain why? (Note: information found in detail minutes of RBA) Question 3: In March 2024, why did the Governor of the RBA, decide to leave the official cash rate unchanged at 4.35 percent. Justify your answer with reasons and evidence. (Note: some research is required into RBA monetary policy) Question 4: Illustrate and explain using the money market equilibrium model and monetary transmission mechanism how an increase in the cash rate from 2.5% in Nov-2022 to 4.35% in Nov 2023 and unchanged until now, would help to bring down inflation within the target rate. Discuss the effect on household consumption, business investment, government spending. GDP, inflation, and housing market. Describe the circumstances in which the RBA board might increase and or decrease the cash rate. (Note: Use GDP, inflation, unemployment, fiscal deficit, and housing price data can be obtained from the Australian Bureau of Statistics and RBA websites for the last 3 years to see the trends, when answering this question).Question 5: Define economic growth. What are the determinants of long-run economic growth? Is high official interest rate of 4.35% ( from Nov-2023 until March-2024 until the present) sustainable to achieve long-run economic growth? YesNo, justify your answer with reasons. (Note: Students need to give their own views supported by references and examples). Conclusion: Provide an overarching conclusion to the case. Reference list: Use in-text citations within your paper to refer to these references. RBA Media Statement: 19-March-2024 https/www.rba.gov.au/media-releases/2024/mr-24-05.html Statement by the Reserve Bank Board: Monetary Policy Decision Number 2024-05 Date19 March 2024 At its meeting today, the Board decided to leave the cash rate target unchanged at 4.35% and the interest rate paid on Exchange Settlement balances unchanged at 4.25 per cent. Inflation continues to moderate but remains high. Recent information suggests that inflation continues to moderate, in line with the RBA's latest forecasts. The headline monthly CPI indicator was steady at 3.4 per cent over the year to January, with momentum easing over recent months, driven by moderating goods inflation. Services inflation remains elevated and is moderating at a more gradual pace. The data are consistent with continuing excess demand in the economy and strong domestic cost pressures, both for labour and non-labour inputs. Higher interest rates are working to establish a more sustainable balance between aggregate demand and supply in the economy. Accordingly, conditions in the labour market continue to ease gradually, although they remain tighter than is consistent with sustained full employment and inflation at target. Wages growth picked up a little further in the December quarter but appears to have peaked with indications it will moderate over the year ahead. Nevertheless, this level of wages growth remains consistent with the inflation target only on the assumption that productivity growth increases to around its long-run average. Inflation is still weighing on people's real incomes and household consumption growth is weak, as is dwelling investment. The outlook remains highly uncertain. While there are encouraging signs that inflation is moderating, the economic outlook remains uncertain. The December quarter national accounts data confirmed growth has slowed. Household consumption growth remains particularly weak amid high inflation and the rise in interest rates. After recent declines, real incomes have stabilised and are expected to grow from here, which is expected to support growth in consumption later in the year. Meanwhile, growth in unit labour costs remains very high. It has begun to moderate slightly as measured productivity growth has picked up in the past two quarters but whether this trend will be sustained is uncertain.The central forecasts are for inflation to return to the target range of 2-3 per cent in 2025, and to the midpoint in 2026. Services price inflation is expected to decline gradually as demand moderates and growth in labour and non-labour costs eases. Employment is expected to continue to grow moderately, and the unemployment rate and the broader underutilisation rate are expected to increase a bit further. While there have been favourable signs on goods price inflation abroad, services price inflation has remained persistent and the same could occur in Australia. There also remains a high level of uncertainty around the outlook for the Chinese economy and the implications of the conflicts in Ukraine and the Middle East. Domestically, there are uncertainties regarding the lags in the effect of monetary policy and how firms' pricing decisions and wages will respond to the slower growth in the economy at a time of excess demand, and while the labour market remains tight. The outlook for household consumption also remains uncertain. Returning inflation to target is the priority. Returning inflation to target within a reasonable timeframe remains the Board's highest priority. This is consistent with the RBA's mandate for price stability and full employment. The Board needs to be confident that inflation is moving sustainably towards the target range. To date, medium-term inflation expectations have been consistent with the inflation target, and it is Important that this remains the case. While recent data indicate that inflation is easing, it remains high. The Board expects that it will be some time yet before inflation is sustainably in the target range. The path of interest rates that will best ensure that inflation returns to target in a reasonable timeframe remains uncertain and the Board is not ruling anything in or out. The Board will rely upon the data and the evolving assessment of risks. The Board will continue to pay close attention to developments in the global economy, trends in domestic demand, and the outlook for inflation and the labour market. The Board remains resolute in its determination to return inflation to target