ECON2420 Semester 2, 2024
Assignment No. 3
Assessment weight: 40%
Available Friday 11 October. Due date: Friday 25 October, 4pm.
Word length: The required word length is roughly the equivalent of 2500 words or 5x A4 pages in 11 or 12 point font with standard margins. The length is ‘equivalent’ to 2500 words because where diagrams are required a diagram should occupy approximately one third of an A4 page. Assignments that are more than 10% in excess of the length described here will be penalised.
Your answers should be typed, but diagrams may be either created with software (e.g. Word, PPT or other) or neatly hand-written.
See further instructions for submission in the assessment folder.
Unless an extension has been granted, a penalty of 4 marks (out of 40) will be deducted per day for up to 7 calendar days, at which point any submission will not receive any marks.
Answer all of the four (4) questions. Not all answers need to be of the same length.
Marking criteria: For all questions, marks will be awarded according to:
· Application and analysis of appropriate economic models, including diagrammatic analysis where required;
· Clarity and coherence of explanations of economic mechanisms;
· Quality of writing and overall presentation.
Overview of this assignment.
This assignment requires you to analyse the Reserve Bank of Australia Statement on Monetary Policy, February 2024. The questions below require you to explain various graphs and statements in the RBA’s document in terms of the models, concepts and economic mechanisms that have been covered in this course up to and including Week 9 (i.e. the topic on monetary policy). You should, where appropriate, illustrate your answers with appropriate diagrams that explain the economic models and concepts discussed in the course.
Question 1 (RBA, Chapter 1)
(i) Given the recent changes in 10-year government bond yields in Graph 1.4, explain the statement (page 7) that “this may reflect greater confidence that policy rates have peaked”.
[4 marks]
(ii) Explain the relationship between the data in the top half and the bottom half of Graph 1.7.
[4 marks]
(iii) Explain reason(s) for the sharp jump in the saving rate in 2019-20, illustrated in Graph 1.18.
[2 marks]
[10 marks]
Question 2 (RBA, Chapter 2)
(i) Discuss the relationship between inflation and unemployment in the past 2 years as shown in Graphs 2.3 and 2.4. In particular, discuss the data in terms of aggregate demand, aggregate supply and the Phillips Curve.
[4 marks]
(ii) Consider the most recent data and the outlook for consumption in China (Graph 2.6 and related discussion). Which driver(s) of consumption explains this most recent data and outlook?
[3 marks]
(iii) Explain in theory the relationship between the two time series in Graph 2.15. Are the data consistent with the theory? Can the data in Graph 2.14 provide insights into the data in Graph 2.15?
[3 marks]
Question 3 (RBA, Chapter 2, 4)
(i) Provide a diagrammatic analysis and explanation of the discussion in Section 2.4 in terms of AD, AS and the labour market.
[5 marks]
(ii) Consider the data and associated discussion around Graphs 3.4, 3.5 and 3.7. Explain what evidence this provides about movements along a Phillips curve between 2018 and 2023.
[5 marks]
[10 marks]
Question 4 (RBA, Chapter 3)
(i) Consider the data in Table 3.1. What does the data indicate about the likely change in the current account balance from December 2024 to June 2026? Provide detailed numerical information from the table to support your answer. Is there any additional data required to make a more precise calculation?
[5 marks]
(ii) What do the data in Table 3.1 indicate about the forecast impact of the economy on the Australian Government’s budget balance from December 2024 to June 2026? You do not need to give a numerical forecast for the budget balance. Rather, use the numerical data in the Table to indicate the plausible impact of the economy on government revenues and expenditures, and hence on the overall balance.
[5 marks]
[ 10 marks]