CASE STUDY

The Federal Government has undertaken a number of recent initiatives to support low income individuals and households to address some of the cost of living pressures:

• increase in JobSeeker Payment of $40fortnight (2023-24 Budget)
• 10-year National Housing and Homeless Plan which includes a $10 billion Housing Australia Future Fund which aims to provide 30,000 social and affordable housing in it first 5 years.

As an expert in the field, you have been hired to assess the potential consequences of these 2 interventions in addressing poverty in Australia. To assess these 2 interventions you are required to:

• (1) Undertake research to assess the potential implications (consequences) of each policy. As you research consider the following:
  • Strengths and weakness (costs and benefits).
  • Can these policies contribute to a reduction in poverty in Australia? Why? Why not?
  • Are they sufficient or insufficient? Why? Why not?
  • Are there any indirect consequences? (see the unseen)
• (2) Using the IS-LM model, illustrate how increased net spending may affect the economy.
  • For the diagram: hand-draw the diagram. Label the initial equilibrium as(point)A and label your hypothesised outcome of the interevention/action as(point)B.
• (3) Demonstrate using diagrams how above outcome would vary depending on how responsive spending and real money demand is to changes in interest rates and income. Label each diagram 'scenario' you provide. For example, Figure 1: money demand is sensitive to changes in income.
  • For the diagrams: hand-draw the diagrams. Label the initial equilibrium as(point)A and label your hypothesised outcome of the interevention/action as(point)B.

Assumingthat these 2 policies contribute to a net increase in government spending:

• (4) Use AE model to illustrate the potential impact on the product market - identifying the initial equilibrium as point A and the outcome equilibrium as point B. Identify the impact on economic activity and the unemployment rate at point B.
  • For the diagram: hand-draw the diagrams
• (5) Given the change in the product market at point B, illustrate the impact this would have in the money market, using the money market model. Identify the initial equilibrium as point A and the outcome equilibrium as point B. Explain very briefly any shifts you make in the model.
  • For the diagram: hand-draw the diagrams
• (6) Given the change in the money money market at point B, illustrate the impact this would have in the exchange rate market, using the exchange rate market model. Identify the initial equilibrium as point A and the outcome equilibrium as point B. Explain very briefly any shifts you make in the model.
  • For the diagram: hand-draw the diagrams
• (7) Given the changes you demonstrated in the money market and the exchange rate market - discuss how these would feedback back into the product market and what the outcome would be for the economy as a consequence.
• (8) Given the consequences you identified above in (7), how may this now affect the problem of poverty in Australia?