Macroeconomics and its study in Economics

1. Macroeconomics and its study in Economics The HSC Course

2. HSC Topic Overview • Topic 1: The Global Economy • International Economic Integration • Globalisation, trade, financial flows, foreign investment, international business cycle, protection, economic development, case study • Topic 2: Australia’s Place in the Global Economy • Trade and financial flows, balance of payments, Exchange Rates, Free trade and protection • Topic 3: Economic Issues • Economics Issues: economic growth, unemployment, inflation, external stability, distribution of income and wealth, environmental sustainability • Topic 4: Economic Policy • Macro policies (rationale, fiscal, monetary) • Micro policies (rationale, regulation, deregulation, competition policy) • Labour market policy • Environmental management • Time lags • Linkages: issues with policy as objectives and how policy deals with them

3. Impact of the global economy on the Australian economy • Importance of Topic 1 • Dominance of Australia throughout the course • Australia’s place • Economic issues • Domestic policy

4. Sources of information • Text books • The Economist and other journals • SMH and Ross Gittins • http://www.leadingedge.com.au/ • http://www.leadingedge.com.au/news/links_economics.php • http://homepages.tig.com.au/~gep/economics.htm • http://www.hsc.csu.edu.au/economics/

5. Macroeconomic theory...how far to go? • Topic 3 on Economics Growth is a key indicator for this: • Economic growth • aggregate demand and its components: Y = C+I+G+X–M • injections and withdrawals (I+G+X; S+T+M) • the simple multiplier: k = 1/(1–MPC) • measurement of growth through changes in real Gross Domestic Product • sources and effects of economic growth in Australia • increases in aggregate supply – improvements in efficiency and technology • trends in business cycle

6. Rationale for Macroeconomic Policy • Macro policy and aggregate demand • Keynesian cross • You need the diagram! • Leakages and injections (circular flow) • S + T + M=I + G + X Keynesian Cross E AS AD 0 Y

7. Increases in aggregate supply • Shifting the aggregate supply curve • the efficiencies (allocative, technical, dynamic and inter-temporal) • Non-inflationary growth AD/AS Model Price level AD AS AS 1 0 Real GDP

8. ...and for policy? • Macroeconomic policies • rationale for macroeconomic policies – stabilisation and shifts in aggregate demand …builds on theory from economics growth • Fiscal policy Federal Government budgets and budget outcomes • effects of budgetary changes on resource use, income distribution and economic activity • methods of financing deficits • use of a surplus • Monetary policy • purpose of monetary policy • implementation of monetary policy by the Reserve Bank of Australia • impact of changes in interest rates on economic activity and the exchange rate

9. Fiscal Policy…theory GDP • Budget outcome vs the fiscal stance • Budgetary impacts on resources, income distribution and economic activity • Counter-cyclical policy • Deficits and surpluses

10. Interest rates…a definition How does the Reserve Bank change the cash rate? What is the relationship between the cash rate and other interest rates in the economy? The transmission process The Cash Market Monetary Policy…theory Cash rate s S1 S2 D 0 Q1 Q Q2 Quantity of cash

11. Task Part 1: • Select one of the following diagrams: • Keynesian AD/AS application • GDP and Multiplier • Inflationary gap • Deflationary gap • Classical AD/AS application • Increase in AS • Long run Phillips Curve • Demand inflation • Shift in AD curve to the right • Read about it, understand it and re-learn it • Prepare to construct the diagram on the white board (from memory) • Explain it to the class

12. Task Part 2: • Select ONE of the following macroeconomic concepts • Economic growth • Unemployment • Inflation • Fiscal policy • Monetary policy • Consider the concepts that cluster around it or those upon which it is based • As a group, assess which of the concepts is the most difficult to teach. Why?