3.Economic management (
What is economic management?
Problems resolved (5)
Also includes (4)
As the Aus Govt notes, it involves...
Impacts wider eco. in 2 ways
Actual size of public sector
Response of private sector eco behaviour to a change in the level or type of public spending or taxation
Fiscal policy tools (3)
the annual Commonwealth Budget
Supplementary fiscal statements
Mid-year economic and fiscal outlook (MYEFO)
Expansionary fiscal policy
Implemented by (4)
increasing government expenditure
increasing ‘transfer payments’
implementing training and education policies
Effectiveness factors (3)
extent already utilised
impact on interest rates
budgetary policy of the states
Contractionary fiscal policy
The Budget outcome — deficit or surplus
Measured in 3 ways
deficit vs surplus
Budget outcomes after unexpected changes in economic conditions
Cyclical Vs Structural
RBA + Monetary Policy
The tools of monetary policy (3)
Undertaken by whom in developed countries?
Functions of the RBA
Act Goals (3)
A.Stability of AUS currency
B.Maintenance of full employment in Aus
C.Economic prosperity & welfare of Aussies.
Major Functions (5)
Monetary policy in Australia
How to tighten
How to ease
The RBA’s domestic market operations
4 main components
Short term deficit (cash market), RBA uses...
Medium-term shortfall, RBA uses...
Budgetary Vs Financial transaction timing...
2 Other considerations...
Approach reflective in nature of instruments used
Theoretically, if the level of profits in an industry/economy are assumed constant (other things being equal), then the:
Change in wages = Change in inflation + Change in productivity
The labour market
reasons for interest (3)
Centralised wage determination
The move to individual workplace agreements
IRC vs AFPC
mixed bag (4)
Imprecise due to...
Common pattern elements (5)
made and the
for which it applies stated.
Introduction to interpreting and making an economic forecast
Main economic relationships (18) [table!]
(perhaps a great thing to memorise?)
Gains from Trade
Benefits > cost (Synergy wins!)
Absolute Vs Comparative advantage
Types of trade models
Labour & Capital
Eco. Little Support...
Protecting domestic jobs
Protecting domestic industries
Other arguments include (4)
Types of trade restrictions (5)
Minimum domestic content
Voluntary export restraint
Economic implications of trade restrictions (5)
• reduce imports
• increase price
• decrease consumer surplus
• increase domestic quantity supplied
• increase producer surplus.
outright prohibition of investment in the domestic country by foreigners
prohibition of or taxes on the income earned on foreign investments by domestic citizens
prohibition of foreign investment in certain domestic industries
restrictions on repatriation of earnings of foreign entities operating in a country.
Commonly cited objectives of capital flow restrictions (4)
Reduce the volatility of domestic asset prices
Maintain fixed exchange rates
Keep domestic interest rates low
Protect strategic industries
Interpreting Economic Data
How do you interpret economic data?
4 components of a time series
Irregular or erratic (2)
What is seasonal adjustment?
should be used...
Distinguishing nominal prices from real changes in expenditure
Chain volume estimates
Real Vs Nominal Growth
The period of measurement
Productivity & Microeconomic reform
Australia’s productivity record
lead to a reallocation of resources to
efficient activities with scope to expand
macroeconomic policies alone are insufficient
Increasing efficiencies (3)
Australian institutions encourage international investment, via increased competitiveness
the removal of budgetary stress by efficiently running government administrations, business enterprises and welfare services.
Reform groups (7)
• environmental and resource economics
• economic and labour market
• economic infrastructure
• microeconomic reform
• social infrastructure
• trade and economic
• general research.
Privatisation of Telstra
Abolition of the two-airline policy
Abolition of the two-airline policy
Labour market reforms
Privatisation of electricity
Opening competition on monopoly services
Government business enterprise (GBE) reform
to improve Australia’s overall economic performance by removing obstacles to efficiency at the sectoral and industry levels.
Forward Looking Indicators
The ABS Private New Capital Expenditure and Expected Expenditure survey
The Index of Consumer Sentiment
Based on (5)
consumers’ current personal financial situations
consumers’ expectations of economic conditions over the coming year
consumers’ expectations of economic conditions over the next five years
buying conditions for major household items at the present time
consumers’ assessment of their personal financial position over the coming year.
Leading indicator of...
Surveys of business confidence
Principle Difficulties (2)
Altering Interest Rates
Fiscal policy (8)
explain the various measures of wage and price inflation
assess the current stance of monetary and fiscal policy in Australia
assess the market and economic impact of a change in monetary policy.
What assumptions do economists make about the relationship of demand to price?
What factors other than price are likely to affect the demand for an item?
Explain how the forces of supply and demand affect the price of assets in financial markets.
Subject Learning Outcomes
3.Analyse the impact of government and monetary policy on the Australian financial markets.
Read 'req reading'
Read 'further resources'