a)Go to the Australian Bureau of Statistics website and find the latest (December 2019) figures for output.In particular, find the percentage change in Trend GDP from the September Quarter 2019 to December Quarter 2019; and the December Quarter 2018 to December Quarter 2019; and the percentage change in Seasonally Adjusted GDP over the same two periods. (2 marks)
b)Do the same for the December 2018 figures. (1 mark)
c)Explain whether, based on the GDP data and all else equal, you would prefer to be incumbent Government running for re-election this time last year or now. (2 marks)
d)Now find the ABS data for the Consumer Price Index, specifically report the figures for the December 2019 and December 2018 All Groups CPI and the Seasonally Adjusted CPI. (2 marks)
e)What are the categories that experienced the most significant price rises and falls?Discuss whether, given your usual consumption bundle, you were likely better or worse off in December 2019 compared to September 2019. (2 marks)
f)With COVID-19, there are talks about countries entering a period of recession. The article defines a technical recession as being two consecutive quarters of negative real GDP growth. What is the NBER (National Bureau of Economic Research) definition of a recession? (1 mark)
Principles of Economics I: Topic 7 Macroeconomic Fundamentals Question 5 a) Go to the Australian Bureau of Statistics website and find the latest (December 2019) figures for output. In particular, find the percentage change in Trend GDP from the September Quarter 2019 to December Quarter 2019; and the December Quarter 2018 to December Quarter 2019; and the percentage change in Seasonally Adjusted GDP over the same two periods. (2 marks) b) Do the same for the December 2018 figures. (1 mark) c) Explain whether, based on the GDP data and all else equal, you would prefer to be incumbent Government running for re-election this time last year or now. (2 marks) d) Now find the ABS data for the Consumer Price Index, specifically report the figures for the December 2019 and December 2018 All Groups CPI and the Seasonally Adjusted CPI. (2 marks) e) What are the categories that experienced the most significant price rises and falls? Discuss whether, given your usual consumption bundle, you were likely better or worse off in December 2019 compared to September 2019. (2 marks) f) With COVID-19, there are talks about countries entering a period of recession. The article defines a technical recession as being two consecutive quarters of negative real GDP growth. What is the NBER (National Bureau of Economic Research) definition of a recession? (1 mark) 8 Lectures_Topic7_S1.pptx Semester12019 1 ©Playconomics,LHS ECON 1012 PRINCIPLES OF ECONOMICS TOPIC 7 – MACROECONOMIC FUNDAMENTALS SCHOOL OF ECONOMICS ThisTopic’sOutline • MacroeconomicFundamentals(Chapter7) – Introducingmacroagents&interactions – CircularFlowModel – Economy-wideOutput • TutorialAssignment – Thisweek’squestionsaredueFridayat9pm – Questionsfornextweekareposted,duenextFriday 2 ©Playconomics,LHS WhatisMacroeconomics? • Output • Inflation • Businesscycles • Fiscal&monetarypolicy • Employment • Internationalinteractions Firstwe’llsetupasimplemodelthatdescribesthe agentsandtheirinteractionsinthemacroeconomy ©Playconomics,LHS 4 SimpleCircularFlowModel ©Playconomics,LHS SimpleCircularFlowModel ©Playconomics,LHS Householdspaytobuygoods&servicesfromFirmsinthe OutputMarket FirmspaytobuyfactorsofproductionfromHouseholds intheInputMarket Householdsownthefactorsofproduction (labour,capital,land,humancapital) Financialflowsareshownontheinside. Input&Outputflowsareshownontheoutside. Semester12019 2 CircularFlowofIncomeModel ©Playconomics,LHS CircularFlowofIncomeModel ©Playconomics,LHS JustthefinancialflowofHouseholds&Firmsbutadds… Government: - PaysFirmsforgoods&services - GivesTransfers(pensions,studentbenefits)to Households - ReceivesTaxesfromHouseholdsandFirms CircularFlowofIncomeModel ©Playconomics,LHS FinancialInstitutions: - Facilitatetransactionsbetweenotheragents - KeepsavingsfromandgiveborrowingtoHouseholds - Allowfirmstoborrowtofundinvestment - Borrowing&lendingtogovernmentandrestofworld RestoftheWorld: - Buysexportsfromourdomesticproducers - Sellsimportstoourdomesticconsumers CircularFlowofIncomeModel ©Playconomics,LHS EconomyGrowsifanyofthepartsgetsbigger: • Householdconsumption • Firminvestment • Governmentexpenditure • Internationalexports ©Playconomics,LHS Economy-wideOutput ©Playconomics,LHS EconomyGrowsifanyofthepartsoftheCircularFlow Modelgetsbigger.Aggregateoutputisthesumof: • Consumption(C)byhouseholds • Investment(I)byfirms • Governmentexpenditure(G) • Netexports(NX) Definition GrossDomesticProduct(GDP):thevalueofallthefinal goodsandservicesthataremadeinaneconomyina particulartimeperiod Semester12019 3 GDPinAustralia (billions$) Adaptedfrom©Playconomics,LHS 7.5timesbigger since1960 Consumption isbiggestpart NetExportssmallBUTeach morethan$300billionin2015 ©Playconomics,LHS Adaptedfrom©Playconomics,LHS GDPpercapita ($US) 6timesbigger since1980 Poorestcountries7xsmallerthan middleand59xsmallerthanhighest Worldaverage2014approx. sameasAustraliain1980 ©Playconomics,LHS Adaptedfrom©Playconomics,LHS GDPbySector Richesthave largestService sectors Poorestcountrieshave largestsharesof Agriculture Middlehavelargestsharesof Industry&Manufacturing ©Playconomics,LHS ©Playconomics,LHS Nominal&RealGDP ©Playconomics,LHS GDPisthevalueofoutput=pricemultipliedbyquantity forallfinalgoodsandservices • Whatifpriceschangebutquantitydoesn’t? - DoesthatmeanGDPrises? - Isthatthesameasquantitieschangingbutnot prices? Nominal&RealGDP ©Playconomics,LHS Definitions Inflation:measuresthechangeintheaggregateprice levelovertime NominalGDP:theaggregatevalueofoutputmeasured withoutaccountingforinflation RealGDP:theaggregatevalueofoutputmeasured includinganadjustmentforinflation Semester12019 4 Nominal&RealGDP ©Playconomics,LHS NominalGDPt=PbananastxQbananast+PrabbitstxQrabbitst NominalGDPt+1=Pbananast+1xQbananast+1+Prabbitst+1xQrabbitst+1 RealGDPt(tprices)=PbananastxQbananast+PrabbitstxQrabbitst RealGDPt+1(tprices)=PbananastxQbananast+1+PrabbitstxQrabbitst+1 • Toaddresstheproblemofpriceschangingovertime, statisticalagenciesconvertnominalmeasurestoreal measuresbyusingastandardsetofprices,eg.timet pricesortimet+1pricesoranaverage Nominal&RealGDPExample ©Playconomics,LHS Time t t+1 % Change Pbananas $2 $4 +100% Qbananas 50 60 +20% Prabbits $10 $15 ? Qrabbits 20 20 ? Nominal GDP $300 ? ? Real GDP (t prices) ? $320 ? Real GDP (t+1 prices) ? ? ? Nominal&RealGDPExample ©Playconomics,LHS Time t t+1 % Change Pbananas $2 $4 +100% Qbananas 50 60 +20% Prabbits $10 $15 +50% Qrabbits 20 20 0% Nominal GDP $300 $540 +80% Real GDP (t prices) $300 $320 +6.67% Real GDP (t+1 prices) $500 $540 +8% ©Playconomics,LHS ConsumerPriceIndex Definition ConsumerPriceIndex(CPI):apriceindexequaltothe currentpriceofafixedbasketofgoodsandservices • Whatiftherearemanygoodsandservices? • Usethepricesofastandardbasketofgoodsand servicestoseehowmuchaveragepriceschangeover time ©Playconomics,LHS ConsumerPriceIndex %changefromsamequarterpreviousyear Averagerateofprice changessince1993is2.6% GDPasaMeasureofOutput&Well-being • HomeProduction • UndergroundorInformalEconomy • IllegalActivities • Volunteering • GDPmightnotmeasurequalityoflifeegleisure • Moreoutputof‘bad’thingsmightnotbegoodeg pollution,crime ©Playconomics,LHS 24