Download Eco120Int Tutorials

School of Marketing and Management
Economics 120: Macroeconomics
Spring 2006
TUTORIALS MATERIALS
(Weeks 8-13)
Lecturer
Rod Duncan
Tutors
Jim Browning, Stuart Evennett, Iain MacDougall, John
Goldsmith
Tutorials
Wednesday, 4:00-4:50, C2-117, T1
Wednesday, 5:00-5:50, C2-213, T2
Monday, 2:00-2:50, C2-206, T3
Tuesday, 4:00-4:50, C2-112, T5
Tuesday, 5:00-5:50, C2-215, T6
Monday, 4:00-4:50, C2-116, T7
Wednesday, 4:00-4:50, C2-116, T9
Page 1
SUBJECT PROGRAM
LECTURE
LECTURE TOPIC
READINGS
July 25
Introduction to macroeconomics
Jackson, Chapters 4 and 5
August 1
Aggregate expenditures model
Jackson, Chapters 5 and 6
August 8
AE model and the multiplier
Jackson, Chapters 6 and 7
August 15
Aggregate demand and aggregate supply model
Jackson, Chapter 8
August 22
Investment and savings
Petty et al, Chapters 4 and
10.
August 29
Review and mid-term 1
September 5
Fiscal policy
Jackson, Chapters 9
Semester break
October 3
Money and the banking system
Jackson, Chapters 10 and
11
October 10
Monetary policy
Jackson, Chapter 12
October 17
Unemployment and inflation
Jackson, Chapter 14
October 24
Economic growth
October 31
International trade and the balance of payments
Jackson, Chapter 16
Jackson, Chapter 18 and
19
November 7
November
13
Review
EXAM PERIOD COMMENCES
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Assessment
Despite their name, do not concentrate on providing a beautifully-formed and structured essay for the
essay questions. Instead concentrate on answering the question which is posed and providing a clear
and concise argument for your answer, based on the material we have covered thus far in the subject.
For some essay questions you will also need to provide a diagram supporting your argument. If you
do provide a diagram, please ensure that it is adequately labelled and legible.
These questions are of the same type that will be used in the final examination, so consider them part
of your preparation for the final. You will need to turn in your answers during the tutorial, so please
be sure to photocopy your answers so that you can refer to your answers during the tutorial. Your
answers will be returned in the following tutorial.
The sources of the material for the tutorial questions are the subject lectures and the chapter readings
from the textbook. The tutorial questions generally make use of material from that week’s or the
prior week’s lecture.
Unless the exercises are computer-based exercises such as designing Excel spreadsheets, you can
submit your answers in any format- just so long as they are legible. If your answers are not legible,
tutors have discretion whether to mark the grade as a zero or to require resubmission of answers.
In this second set of tutorial materials, there will be no multiple choice questions and more emphasis
on essay questions. Please remember that this does not necessarily mean that there will be fewer
multiple choice questions on the later material in the subject.
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Economics 120: Macroeconomics
Tutorial 8 (Week 8)
Essay questions
Question 1
Bring a clipping about some current macroeconomic event from a newspaper or magazine to the
tutorial and prepare a discussion about it. You should prepare a 100 word explanation of your article
fitting the words and concepts dealt with in the article to the material in our subject.
Page 4
Economics 120: Macroeconomics
Tutorial 9 (Week 9)
Data gathering
For this exercise, you are going to find data on government fiscal policy (tax revenues and
government spending) and the Australian business cycle (use some measure of real GDP per person).
This data will be used later in the report that you will be handing in during the Week 12 tutorial.
Go to some of the websites for Australian government statistics such as:
Australian Bureau of Statistics (http://www.abs.gov.au)
Reserve Bank of Australia (http://www.rba.gov.au)
Commonwealth Treasury (http://www.treasury.gov.au)
Or you could use websites of international statistics such as:
World Bank (http://www.worldbank.org)
International Monetary Fund (http://www.imf.org)
Penn World Tables (http://pwt.econ.upenn.edu)
Find data on fiscal policy and the Australian business cycle over the last 30 years- from 1976-2006.
You may not be able to get data up to 2006, so use earlier data if you have to. Prepare graphs to
illustrate how these macroeconomic variables have changed over the last 30 years.
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Economics 120: Macroeconomics
Tutorial 10 (Week 10)
Read the speech by Glenn Stephens (then Deputy Governor of the Reserve Bank, now the Governor)
at the back of this tutorial packet. There are two levels on which I want you to read this speech.

To obtain information about Australian monetary policy, history and inflation targeting.

To see a good example of numerical data being used in a presentation to support an
argument.
Answer the following questions based on this reading:
1. What is “inflation targeting”?
2. When did Australia adopt inflation targeting?
3. Has inflation targeting been a success in Australia according to Stevens, and on what basis does
he say this?
4. Use the AD-AS model to describe how a Reserve Bank operates according to an inflation target.
Use diagrams and explanatory text.
5. (Not explicitly in the Stephens reading): What monetary policy did the Reserve Bank follow
before inflation targeting?
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Economics 120: Macroeconomics
Tutorial 11 (Week 11)
Essay question
Question 1
Prepare a short (500 word) report on how the Australian government could use its discretionary
powers of taxing and spending (fiscal policy) to balance out the business cycle.
Hints:

Draw a diagram of the business cycle describing what happens in a “typical” cycle.

Relate what we observe in terms of output and prices at particular points in our business cycle
diagram to some AD-AS models of the economy.

Use the AD-AS model to carefully explain how the government could use its fiscal powers to
“smooth out” the booms and busts of the business cycle.

Explain what a fiscal policy that stabilizes the business cycle would look like over time.

Be sure to use the formal structure of a report- executive summary, factual style, etc.

You will want to use some of this material in your report due next week.
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Economics 120: Macroeconomics
Tutorial 12 (Week 12)
Your task for this tutorial is to turn in your report.
Report on the use of fiscal policy in Australia over the last 30 years
Rationale
The purpose of the report is to establish whether students understand the basic models of the subject
well enough to be able to use those models to write a report on a real world subject. Students will
also be expected to demonstrate skills in researching real world data, displaying real world data in a
meaningful manner and writing a report showing the results of their research.
Assessment Task
The students are to prepare a report (the qualities of a report will be discussed in tutorials) of 2,000
words on the following question:
“How effective has Australian fiscal policy been in reducing the swings in the Australian business
cycle over the last 30 years?”
What will you be assessed on?

Your ability to use the models from the subject- both in text and in diagrams.

Your ability to use the models from the subject to make an argument about a topic in the real
world.

How well you integrate the data on the history of the business cycle and fiscal policy into
your argument.

How well you construct graphs and diagrams to support your argument from the models.
Page 8
Economics 120: Macroeconomics
Tutorial 13 (Week 13)
Essay questions (1-4)
Question 1
We start at full-employment equilibrium.
(a) Draw our initial equilibrium using the AD-AS diagram. Label your diagram carefully.
The Australian government increases government spending, G, to improve security at Australian
airports and ports.
(b) Show how this increase in G will affect equilibrium on the AD-AS diagram. Clearly indicate the
initial equilibrium and the new equilibrium.
How might the RBA respond to this change in G?
(c) If the RBA wanted to insure that there would not be inflation (a rise in P), what would the RBA
do in the money market? Explain carefully and show on your AD-AS diagram.
Question 2
Carefully explain:
(a) the investment “crowding out effect” (see pages 311-2 of the book); and
(b) the “net export effect” (see pages 317-8 of the book).
Using both text and diagrams where relevant.
(c) Imagine we have a fall in government spending. How are these two effects similar? How are
they different?
Question 3
The Chinese government recently began allowing its currency (the “yuan”) to appreciate relative to
other currencies in the world, including the Australian dollar.
(a) Assuming all other currencies stay the same, what will the effect of this appreciation be on
Australian balance of payments?
(b) Assuming all other currencies stay the same, what will the effect of this appreciation be on the
Australian economy- GDP, unemployment, prices, etc.
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Question 4
The quantity theory of money (QTM) is a very simple yet useful model of the economy. The QTM
states that we expect the following relationship to hold:
PY=vM
Where P is the average level of prices, Y is real GDP, v is the velocity of money and M is the supply
of money. The velocity of money, v, is assumed constant over time, unless stated otherwise. Let’s
assume that this model is an accurate model of our economy.
(a) The RBA wants to keep P constant (low inflation), what rule should the RBA follow for M?
(b) If the introduction of ATMs and credit cards means that v increases substantially, how should the
RBA respond so that inflation is kept low?
(c) We have a negative shock to the economy and so Y falls. If the RBA wishes to keep inflation
low, what should the RBA do? What would this response by the RBA lead to in our AD-AS model
of the economy? Show on an AD-AS diagram.
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