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September 24, 2021, 07:20:23 am

Author Topic: HSC Economics Question Thread  (Read 126425 times)  Share 

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okeh

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Re: HSC Economics Question Thread
« Reply #705 on: June 23, 2020, 09:33:51 pm »
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The Australian Government uses monetary policy to achieve sustainable economic growth and internal balance, which is achievement of sustainable inflation and the full employment of resources. Monetary policy, conducted by the Reserve Bank of Australia (RBA) in consultation with the Australian government, is the use of domestic market operations (DMOs) to affect the supply and cost of credit, which then influences the level of spending, output, employment and inflation across the Australian economy. DMOs is the buying and selling of Commonwealth Government Securities by the RBA to influence the money supply in the short-term money market, which thereby raises or lowers the cash rate. Monetary policy is a medium-term macroeconomic policy that targets the objectives of sustainable economic growth, price stability and full employment.
The movement of the cash rate initially affects short-term interest rates, then medium to long-term interest rates which ultimately influences the cost of credit across the economy. Monetary policy operates through six transmission channels; expansionary monetary policy is set through a lowering of the cash rate which encourages borrowing and spending on consumption and investment, thereby attributing to higher inflation and lower unemployment. Expansionary monetary policy stimulates aggregate demand by encouraging cash flows between borrowers and lenders, lower costs of credit borrowings, higher asset prices, increased capital outflow which thus leads to an exchange rate appreciation and finally raise inflationary expectations by increasing wage and price demands. Conversely, a contractionary monetary policy stance will discourage borrowing and spending and instead encourage spending in the economy, which would sustain a low inflation rate while increasing the level of unemployment within an economy.
The main objective of MP is maintaining price stability through keeping inflation at a sustained level that will not distort the economy. Australia formalised an inflation-targeting regime in 1996, with a target band of 2-3% inflation, to act as an anchor for inflationary expectations. Prior to 1996, Australia had a relatively high inflation rate but after the 1990s recession and the adoption of the inflation target, Australia’s inflation has been sustained since; both headline and underlying inflation averaged 2.7% between 1996 and 2011, and have averaged under 2% since 2014. Headline inflation measures the movement of prices of a basket of goods and services, weighted according to the significance for the Australian household while underlying inflation is headline inflation that removes one-off price movements and volatility. Underlying inflation tends to be less variable and more accurate in analysing long-term trends in inflation.
Inflationary pressures re-emerged in 2009 as the economy recovered from the downturn caused by the Global Financial Crisis (GFC) of 2008-09, leading to a period of stronger economic growth, wages growth at 4% and falling labour productivity, putting upward pressure on prices. The RBA adopted a contractionary monetary policy stance by raising the cash rate eight times from 3.00% to 4.75% to address inflationary expectations and a rise in inflation during the re-emergence of the commodities boom. Further cash rate increases ceased in November 2010 as the economy recovered from the GFC, despite headline inflation moving out of the RBA’s target range, reflecting the increase in fruit and vegetable prices following the floods and Cyclone Yasi in 2011. In recent years, Aus’ inflation rate has remained at or below the target range of 2-3% and reflects the effects of subdued EG, low inflation overseas and low wages growth, which averaged 2% in 2017 and 2018. Low wages growth reduces inflationary pressures significantly, because labour is the largest cost item for most businesses. In the next few years, inflation is forecasted to remain low, which will allow the RBA to keep i/r at record low levels, which boosts eco activity and thus leads to lower UE levels, leading to EG. Overall, monetary policy is the main policy used in the short and medium-term to achieve price stability as it attempts to sustain non-inflationary economic growth over the long-term.
A second key objective addressed by monetary policy is the achievement of sustainable economic growth over time, which is the rate of the increases in real GDP within the Australian economy. The Australian Government targets a 3-4% economic growth rate, and the stance of monetary policy can have a significant influence on the level of aggregate demand (AD) that can lead to an expansionary, contractionary or neutral effect on economic growth. The global economy experienced the GFC of 2008-09 as sub-prime mortgage crisis in the US housing market led to tightness in global credit markets. The cash rate was cut six times from 7.25% in September 2008 to 3.00% in April 2009, the lowest in 49 years, to support consumer confidence, domestic demand, employment and economic activity through encouraging spending and borrowing.
Recently, since 2011, the RBA has consistently eased MP, from 4.5% in 2011 to 0.25% in March 2020. In 2012, RBA eased MP due to the uncertainty surrounding the outlook for the global economy and the uneven pace of recovery in the Aus economy, with EG of 1.4% (2010-11), 3.7% (2011-12) and 2.6% (2012-13). The c/r cut of 50 basis points in May 2012 and 25 points in June 2012 were a result of the weakening growth in Europe, and the effects of the European Debt crisis. Also, the moderation of growth in China whose demand for Aus’ commodities X which underpinned Aus’ strong EG since GFC and a deterioration in financial market sentiment and the contractionary stance of Aus FP, all contributed to the four rate cuts of 25 basis points each in 2012 alone. Through the lowering of the c/r, AD was stimulated by reducing the cost of credit, in order to buffer the Aus eco against global eco uncertainty, resulting in a high level of EG in 2012. MP was therefore an effective countercyclical policy that aims to smooth the fluctuations in the business cycle by influencing the levels of AD through the instrument of the c/r.
However, there are conflicts between the objectives of achieving full employment and price stability as tightening monetary policy reduces inflationary pressures but can lead to higher levels of unemployment. Conversely, loosening monetary policy increases may reduce unemployment but could lead to an increase in inflation. Another disadvantage associated with the use of monetary policy is the time lag of 6 to 18 months between the implementation of a change in the cash rate and its impact on the economy. The RBA counters this by acting pre-emptively and using small adjustments to the cash rate to address inflation concerns before it emerges as a problem while simultaneously keeping the rate of unemployment close to the non-accelerating inflation rate of unemployment.
Monetary policy is also considered a ‘blunt instrument,’ where any changes to the level of the cash rate will impact on spending and borrowing across the economy, irrespective of industry. The Resources Boom Mark II mainly caused the inflationary pressures that re-emerged during Australia’s recovery from the GFC with strong economic growth prospects underpinning a growth in spending. An increase to the cash rate had therefore been necessary to put downward pressure on prices, and it had led to an appreciation of the exchange rate as Australia became a more favourable investment destination. But as Australia is a two-speed economy, non-mining export industries further struggled under the high Australia dollar due to a reduction in Australia’s international competitiveness as a direct result of the adjustment of the cash rate. Also, recently, banks have been acting more independently and have not been fully responding to any changes to the cash rate on the basis of maintaining their profit margins. Therefore, the effectiveness of monetary policy is currently undermined by these factors.
In conclusion, MP is a medium-term macroeconomic policy that influences the level of AD, which thus affects the level of economic growth and price stability, and employment levels as well. Prior to the past five years, RBA has been somewhat effective in achieving sustainable economic growth and internal balance by acting pre-emptively and with close observation to a variety of economic indicators, however, more recently, MP’s effectiveness has diminished due to the lack of integration between MP and FP.

SORRY GUYS FOR THE LONG READ, but HOW CAN I IMPROVE THIS ESSAY??

0447940204

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Re: HSC Economics Question Thread
« Reply #706 on: December 09, 2020, 06:31:28 am »
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Hello!

Has anybody got some nice recommendations for my Economics Case Study? I was considering doing Japan, South Korea or India, but I would really appreciate some suggestions and maybe why you've recommended that particular country.

Thanks so much!
"Nobody minds having what is too good for them." Jane Austen.

Bri MT

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Re: HSC Economics Question Thread
« Reply #707 on: December 09, 2020, 10:56:44 am »
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Hello!

Has anybody got some nice recommendations for my Economics Case Study? I was considering doing Japan, South Korea or India, but I would really appreciate some suggestions and maybe why you've recommended that particular country.

Thanks so much!

Hello!

I didn't do economics in high school but my macroeconomics class in uni this sem looked at Brazil. I personally found it really interesting to look at how Brazil climbed up, did so well in the GFC, and then how things have gone wrong since then.

I don't know enough about your syllabus to really suggest it but maybe the idea will help :)

Samueliscool223

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Re: HSC Economics Question Thread
« Reply #708 on: January 19, 2021, 01:49:18 pm »
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Hello, I was just wondering, how exactly does a lower value for the AUD, and hence increased demand for and purchase of Australian assets by foreign entities, increase Australia's external liabilities and by extension NFD?
Shouldnt it decrease liabilities if anything and reduce NFD since they are the ones borrowing/purchasing our assets and hence they should have a liability to us and not the other way around, or am I being dumb

gusm03

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Re: HSC Economics Question Thread
« Reply #709 on: July 11, 2021, 05:20:48 pm »
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HELP!

0447940204

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Re: HSC Economics Question Thread
« Reply #710 on: August 29, 2021, 11:15:27 am »
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Hello, I am really struggling with this question:

Explain how a floating exchange rate helps achieve equilibrium in the balance of payments.

It is a six-marker, and although I understand how the exchange rate affects the balance of payments (e.g. the valuation effect on NFLs in the NPY and changing export prices affecting the BOGS), I don't know how the floating exchange rate keeps it in equillibruim.

Can anyone help?

Thanks!
"Nobody minds having what is too good for them." Jane Austen.

newbie17

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Re: HSC Economics Question Thread
« Reply #711 on: September 02, 2021, 11:45:16 am »
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Explain how a floating exchange rate helps achieve equilibrium in the balance of payments.
Can anyone help?

I've only ever seen this question once, and it was in an independent trial paper.

For the sake of the syllabus, you really don't need to know this. But, for your curiosity:

The BOP equilibrium is automatically restored with a floating exchange rate, not a fixed exchange rate.

Take for example, $1.00 USD = $1.20 AUD. An overseas investor lends $1000 USD or $1200 AUD. Assume there is an interest of 1% for lending this money. Australia will have to pay back $1000 USD + $10 USD interest, or $1200 AUD + $12 AUD interest. However, the surplus on the KAFA ($1000 USD) will not equal to the deficit on the CA ($1010 USD). So, an equilibrium is not reached.

Here's what happened behind the scenes, though. When the overseas investor lent $1000 USD, they needed to first buy $1200 AUD. This increased the demand for the AUD, hence made it appreciate. We're not sure what it might have appreciated to, but lets say it became $1.00 USD = $1.189 AUD. This means that the $1010 USD we need to pay back becomes $1200 AUD rather than $1212 AUD. So, in this case, an equilibrium is reached.
« Last Edit: September 02, 2021, 11:48:03 am by newbie17 »
HSC '17 - 98.30 ATAR.
HSC Economics 97.

jaidaswift

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Re: HSC Economics Question Thread
« Reply #712 on: September 16, 2021, 11:23:11 am »
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Hi, year 11 going to year 12 here. I was wondering what equipment you recommend for economics and what helped you when studying? My school hasn't provided an equipment list and I wanted advice from people who have done economics.

newbie17

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Re: HSC Economics Question Thread
« Reply #713 on: September 17, 2021, 01:14:39 pm »
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Hi, year 11 going to year 12 here. I was wondering what equipment you recommend for economics and what helped you when studying? My school hasn't provided an equipment list and I wanted advice from people who have done economics.

Not sure what you mean by equipment. Tim Riley or Tim Dixon textbook will serve you just fine. To ease into the HSC, download some free notes on topic 1 and skim through it whenever.
HSC '17 - 98.30 ATAR.
HSC Economics 97.