Module 7 Solutions PDF

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Solutions for tutorial 7...

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Module 7 Solutions

Q1 Answer: ( a )

Mone ys u ppl y  i nt e r e s t r a t e s   Ia ndi n t e r e s ts e ns i t i v eC  AD SASa n dLASu nc ha n g e d .

( b )

Sl o wdo wni nCh i na ’gr o wt h X( e . g . e ne r g ya n dmi n e r a l s )t oCh i n a c ompa r e dt op r e v i ou sh i gh l e v e l s AD( mor ec o r r e c t l yADg r o wt h)  [ Not et h a to ure xpo r ta ndADwi l lc o nt i n uer i s ebu ta tal o we rr a t e . ] SASa n dLASu nc h a n g e d .

( c )

I n v e s t me n t  AD . Whe nc a pi t a ls t o c ki n c r e a s e s , p r odu c t i v i t y SASa ndLAS

( d )

I n c omet a xc ut d i s p os a bl ei n c ome  AD SASa n dLASu nc h a n g e dont h ea s s u mpt i o nt ha tl a b ours up pl yi su n a ffe c t e db yi n c omet a xc ut .Buti f l a bou rf or c ep a r t i c i p a t i o nr a t ei si nc r e a s e ddu et ol o we ri nc o met a x, SASa ndLASwi l lb ot hi n c r e a s e .

Q2

Ans we r : ( a )( I ) Gr o wt hi nEa s tAs i a n AusX AD  RGDP a ndP ( I I ) I nc r e a s ei no i lp r i c e SAS  RGDP a n dP ( b )Pwi l l b utRGDPma y o r;i td e pe nd so nt hema gn i t u de so fe ffe c t si n( I )a nd( I I ) . ( c )Toc o un t e ri nfla t i o n,c ont r a c t i on a r yfis c a la nd / ormo ne t a r yp ol i c yc a nbeus e d .

Q3 Answer:

CPI

Re alGDP SRr e a lGDP LRa gg r e g a t e de ma nde d s uppl i e d s uppl y ( b i l l i on so fc on s t a n tdol l a r s )

9 5 100

7 30 72 0

6 90 7 00

70 0 70 0

105

71 0

7 10

110

70 0

7 20

70 0 70 0

115

69 0

7 30

70 0

120

68 0

7 40

70 0

125

67 0

7 50

70 0

Th eLRa ggr e ga t es u pp l y=6 77* ( 1 +3. 4 %)=$ 700bn ( a ) ( b )

Ne xty e a r ’ sr e a lGDPf or e c a s ti s$ 7 10b n Pr i c el e v e lwi l li nc r e a s ef r om 1 00t o1 05. Thepr e di c t e di n fla t i o nr a t e=( 10 510 0) / 1 00=5%.

( c ) ( d )

Si n c ea c t ua lr e a lGDP( 710 )i sgr e a t e rt ha nt hepo t e nt i a l( f ul le mpl o yme nt )r e a lGDP( 700 ) ,a n i n fla t i o na r yg a pwi l le xi s t . Si n c et h ee c o nomywi l lbeo pe r a t i n gbe y ondi t sf ul lc a p a c i t y ,t h e r ewi l lbea ne x c e s sde ma nd f orl a bo ura tt hec u r r e ntwa g er a t e s ,a n ds ot h e r ewi l lb eu p wa r dpr e s s u r eo nwa g er a t e s .

Q4 Answer: ( a ) ( b ) ( c ) ( d )

La r g eg r o wt hi nt r a di n gp a r t n e r Au s t r a l i a ne xpo r t s  n e te xp or t s  Fa l li ns t o c kpr i c e s we a l t h  c on s u mp t i o n  i mpor t si nt oAus  ne te x po r t s Ri s i n gi n fla t i o ni nAus p r i c e so fAuse xp or t s  e x po r t s a n di mp o r t s  n e te x po r t s Au sGDP  i mp or t s  ne te x por t s

Q5 Cr i t i c a lThi nki ngQue s t i o n Ac c or d i n gt of or e c a s t , t hep r i c el e v e lwi l lbea t12 0a ndRGDPa t $4 10bnn e xty e a r . ( a )

Att hec ur r e ntl e v e lo fRGDPof40 0,RGDPwi l li nc r e a s eb y$10b i l l i on s( o r2. 5%) .

( b )

Thepr i c el e v e lwi l li nc r e a s eb y1 0po i n t s .

( c )

Gi v e nt h ec ur r e ntpr i c el e v e la t1 10 ,t h e r ewi l lbei nfla t i onofa b out9% ( =10 / 1 10) .

( d )

Si n c et h ec ur r e n te c o no myi sa tf ul le mpl o y me nt ,f u r t h e rgr o wt hbe y on df u l le mp l o yme n twi l l r e duc eune mp l o y me ntt obe l o wt h en a t ur a lun e mpl o y me ntr a t e .

( e )

Q6

I n fla t i on a r yg a ps i nc et h ee c o nomyi so p e r a t i n gb e y on di t sf u l lc a pa c i t y .

As explained in lecture slides 24 to 29....