School of Marketing and Management

INTERNAL SUBJECT OUTLINEAutumn 2005

Economics 220: MACROECONOMIC ANALYSIS

Subject Lecturer Roderick Duncan

Telephone 02-6338-4982Fax 02-6338-4769Email rduncan@csu.edu.au

Class Contact

Lecture Tuesdays1.00 pm - 2.50 pmC2 - G02

Tutorials Thursdays1.00 pm - 1.50 pmC2 - 215

Consultation Tuesdays 10.00 am - 12.00 amTuesdays 3.00 pm - 5.00 pmThursdays 2.00 pm - 5.00 pm

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SUBJECT DETAILS

Welcome to a new session of study at Charles Sturt University. This subject extends the study of macroeconomics to encompass a comprehensive model of an open economy such as Australia. Emphasis is placed on the relationship between the real and financial sectors of the Australian economy and the impact of various internal and external shocks to the domestic economy and its financial markets.

TEACHING STAFF

Dr Roderick Duncan, BEc(Hons), LLB, PhD

Dr. Duncan is a lecturer in economics at CSU. Prior to this, he taught at the Georgia Institute of Technology in Atlanta, USA. He studied for his undergraduate degrees in economics and law at the Australian National University and his doctorate in economics at Stanford University. His research interests centre on development problems in Third World countries and especially the links between natural resources and development. He has also been known to write on disparate topics, such as the relationship between rising female education and falling marriage rates.

OBJECTIVES

This subject builds on previous study of the principles of macroeconomics. The focus of the subject is slanted towards understanding the impact of global macroeconomic activity and international finance markets on the domestic economy.

Australia can be described as a small open economy. With its advanced financial system and floating exchange rate it is strongly integrated into the global economy. Events in the major economies and key financial markets impact strongly on the domestic Australian economy. Exchange rates, interest rates, stock prices and foreign economic policies are vital factors in determining Australia’s future economic progress. In particular the finance markets of the world are increasingly sensitive to economic events in the major world economies. Shocks in key financial markets are also increasingly important for the functioning of individual economies, especially the small open economies like Australia.

The textbook has a stronger global and finance market focus than is traditionally found in texts on macroeconomics. It has been selected because this is the focus intended in this subject. Although not an Australian text, it is more globally focused than most US publications. Its author, Olivier Blanchard, is an internationally renowned macroeconomist who although based in the US, has a background in France, and hence his text includes case material and analysis related to a number of the world’s economies.

Another feature of this subject is the expectation that students will remain cognisant of current economic and financial issues throughout the semester and be able to analyse these issues using the tool kit of economic techniques provided in the text. Assignment work will demand an awareness of current issues as well as an understanding of the text material.

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Learning Outcomes

At the completion of this subject you should be able to:

Recall the basic concepts and definitions of macroeconomics

Recall the basic macroeconomic theory of aggregate output determination (the goods market)

Recall the fundamental elements of this theory: exogenous and endogenous variables; equilibrium output, autonomous spending, consumption function

Illustrate the basic theory of aggregate output determination using graphical and mathematical techniques

Explain the dynamics of the aggregate output determination model

Explain the distinction between money and bonds, wealth and saving, stocks and flows

Explain the determinants of the demand for money and its relationship to the demand for bonds

Define the velocity of money and explain its relationship to interest rates

Explain the determinants of the supply of money

List the components of the money supply and understand how the money supply is changed

Describe the determinants of investment

Derive the IS and LM curves

Explain the factors which cause the shape of and shifts in the IS and LM curves

Demonstrate an understanding of the equilibrium condition generated by the IS-LM model

Examine the impacts of Fiscal and Monetary Policy using the IS-LM model

Demonstrate an understanding of the dynamics of the IS-LM model

TEXTBOOK (compulsory)

Blanchard, O. and Sheen, J. (2004) Macroeconomics , Australasian edition, Pearson Education Australia.

RECOMMENDED TEXT(S) (optional)

Findlay, D. (2000). Study Guide and Tutorial - Macroeconomic. Prentice Hall: New Jersey.

(This is the study guide for the American version of the textbook.)

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RECOMMENDED READING (optional)

Dornbusch, R, Fischer, S & Kearney (2001), Macroeconomics, Australian Edition, 8th edn, McGraw Hill, Sydney.

Miles, D & Andrew, (2002), Macroeconomics – understanding the wealth of nations, John Wiley & Sons.

Gordon, R J (2003), Macroeconomics, 9th edn, Addison Wesley.

WEB REFERENCES (optional)

Commonweath Treasury, Australia (http://www.treasury.gov.au/)

Reserve Bank of Australia (http://www.rba.gov.au/)

Australian Bureau of Statistics (http://www.abs.gov.au/)

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SUBJECT PROGRAM

LECTURE LECTURE TOPIC TEXTBOOK REFERENCE

22 February Introduction Blanchard: Chs. 1, 2

1 March The basic macroeconomic model Blanchard: Chs. 3, 4 & 5

8 March The labour market Blanchard: Ch. 6

15 March AS and AD in the macroeconomic model Blanchard: Chs. 7

22 March Phillips Curve : Unemployment & Inflation Blanchard: Chs. 8

19 April Money Growth & economic activity Blanchard: Ch. 9

26 April The role of expectations Blanchard: Chs. 14 & 15

3 May The role of expectations Blanchard: Chs. 16 & 17

10 May Open economy macroeconomics Blanchard: Chs. 18 & 19

17 May Open economy macroeconomics Blanchard: Chs. 20 & 21

24 May Macroeconomic problems Blanchard: Chs. 22 & 23

31 May Economic policy Blanchard: Chs. 24, 25 & 26

7 June Review

EXAM PERIOD COMMENCES

TUTORIAL SCHEDULE

There will be no tutorial in the first week of classes (Thursday, 24 February). The content of the tutorials will depend on the progress in class.

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ASSESSMENT

There are three assessment items for this subject.

Assessment Items Value Due Date

1. Assignment 1 25% Tuesday, 22 March, 2005

2. Assignment 2 25% Tuesday, 10 May, 2005

3. Final exam 50% Final exam period

REQUIREMENTS

To gain a pass in this subject, students must:

Achieve a passing grade in the final examination ie. score a minimum of 25 marks out of 50.

Attempt ALL three areas of assessment; and achieve a total result of 50% or better overall.

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ASSIGNMENT 1

Due Date: 22 March, 2005

Value: 25% of total grade

Maximum Length: 5 pages

Rationale

This assignment is designed to:

Allow you to demonstrate your understanding and knowledge of the relevant topics in very specific and clear ways.

Assist you to use your numerical skills in analysing the practical macroeconomic issues. Allow you to understand the theoretical issues in the real world context.

Answer the following questions as completely as you can. Use graphs and/or figures to illustrate your logic where possible.

Question 1

Imagine that we live in a country approximated by the equations:

C = 20 + 0.5 YD

G = T = 40

I = 40

(a) Solve for the equilibrium values of GDP, disposable income and consumption. Show all your work.

(b) What is the value of the multiplier?

(c) Our country has a balanced budget requirement in our constitution, so we require that any changes in government spending be balanced by an equivalent change in taxes. What is the impact on GDP of raising government spending by 10? Or of raising government spending by any amount X? Explain.

Question 2

Imagine we have the same country as in Question 1. Now instead of having a fixed amount of investment, assume we have an equation for investment that depends on the interest rate and GDP:

I = 20 + 0.25 Y – 100 i

(a) Derive the relationship between GDP and the interest rate. Plot this relationship on a graph.

(b) What have you derived in part (a)? Explain.

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(c) What is the new value of the multiplier (assume we hold i fixed)? Explain.

Question 3

Using the same equations that we used in Questions 1 and 2, imagine that equilibrium in the market for real money is determined by the equation (the LM equation):

10 = .1 Y – 30 i

(a) Solve for the equilibrium levels of GDP and the interest rate. (Hint: You have two equations in two unknowns. Eliminate the interest rate from the equations by substituting for i.)

(b) Graph the IS and LM equations you have derived and indicate the equilibrium point.

(c) What is the new value of the multiplier (not holding i fixed)? Is it smaller or larger than your answers in the previous questions. Explain why.

Assessment Criteria

Correctness of the answers. Supporting arguments. Demonstrated evidence of clear understanding of the topics and the specific questions. Ability to write answers in clear and targeted manner, including use of figures and

graphs to explain your answers.

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ASSIGNMENT 2

Due Date: 10 May, 2005

Value: 25% of total grade

Maximum Length: 2,000 words

Rationale

This assignment is designed for you to:

apply the theoretical knowledge of macroeconomics to explain the practical events in the Australian economy;

demonstrate your level of understanding and the level of research effort; develop your abilities to collect and interpret statistical data; develop your ability to communicate in writing and create a professional presentation.

Write an essay on the following topic:

Topic

Assess the impacts of changes in monetary policy in Australia on output, employment, inflation and exchange rates during the last five years (January 2000 – December 2004).

Use changes in ‘target cash rate’ as the indicator of monetary policy changes. Remember, money supply has to go up to reduce the target cash rate and vice versa.

Hints

You must do research to write a good assignment. Try to use different sources of information (from web and hard copies) and analyse them properly.

Write in essay format. The essay should be divided into different sections (as per your perception and convenience), but it must have an introduction and a conclusion. Must use graphs and tables to illustrate. Try to be more analytical than descriptive (i.e. analyse the information and try to explain the movements). Collect data and information on changes in monetary policy, real GDP growth, unemployment rate, inflation rate and exchange rate for the required five years (sources are given below). You may include additional related variables as well to explain the impacts on the economy. Try to identify the impacts of cash rate changes on the variables mentioned in the topic. Comment on the level of impacts. Explain why impacts on some areas are stronger than the others. Present trend data in graphs to explain the relationships clearly. Use all the theoretical concepts learned in this subject so far (particularly the relationships explained in Topic 2.4) to explain the actual situation in Australia. Explain clearly the difference you observe between theories and practice in this situation.

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Source of data and information

Statistical data

The Australian Bureau of Statistics (http://www.abs.gov.au)The Reserve Bank of Australia (http://www.rba.gov.au).

Quick data sources

RBA site – go to ‘Statistics’, then:

For Target Cash Rate : ‘Changes in Target Cash Rate’ table. For GDP : Table G10 under ‘Bulletin Statistical Tables’. You need to work out

growth rates from absolute figures. It may be advisable to use quarterly growth rates. For Unemployment : Table G7 under ‘Bulletin Statistical Tables’. For exchange rate : Table F11 under ‘Bulletin Statistical Tables’. For inflation : Table G1 under ‘Bulletin Statistical Tables’.

For additional data you may look at RBA and ABS sites.

Data and information

Reserve Bank of Australia (http://www.rba.gov.au).Commonwealth Treasury (http://www.treasury.gov.au)Financial newspapers and journals [e.g. the Australian Financial Review (http://afr.com.au)]

Assessment criteria for Assignment 2

Specific criteria

1. Relevance of content to topic (20% of marks)

Demonstration of clear understanding of the relevance of the subject you are analysing.

Overall understanding of the assignment objective.

(10% of marks for each)

2. Clarity of arguments (30% of marks)

Quality of logical arguments Effective linkages between concepts and sections Clarity of concepts

(10% of marks for each)

3. Data collection and presentation (20% of marks)

Collection of appropriate data Presentation of data (tables, graphs, etc.)

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(10% of marks for each)

4. Presentation and organisation of the essay (20% of marks)

Quality of organisation - should comprise of an introduction, body (may be in several well identified sections) and conclusion – should have clear paragraph structure (with sub-headings, if you feel necessary) and linkages.

Quality of presentation - expressed clearly, concisely and within word limit, clear graphs and tables.

(10% of marks for each)

5. Reference (10% of marks)

All source material should be appropriately referenced in the essay and a list of all materials be included in the bibliography at the end of the essay.

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FINAL EXAM Note: You must sit and pass the final examination in order to pass the subject.

Due Date: During the final exam week 14-24 June

Value: 50% of total grade

Rationale

The final exam is designed to:

allow you to demonstrate your overall understanding of the subject;

give you wider scope in answering and in interpreting different concepts and practical problems in macroeconomics;

assess whether you have clearly understood and remembered essential concepts, knowledge and terms covered in the subject.

Assessment criteria

Marks will be awarded based on the following criteria:

Correctness of your answers.

Supporting arguments.

Demonstrated evidence of clear understanding of the subject and the specific questions.

Ability to write your answers in a clear and targeted manner.

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EXTENSIONS AND LATE SUBMISSIONS

If you are having difficulty in completing work in time due to illness or unusual circumstances, you may request an extension through your lecturer with supporting documentation eg. medical certificate. Applications for extensions on or after the due date of the assessment items will not be considered. NO extensions will be given without documentary evidence of inability to meet deadlines. A deduction of 10% of the marks awarded per day late applies if a piece of work is submitted late without approved extension.

GRADES

Final grades for this subject are awarded by the CSU Faculty Assessment Committee in accordance with the University’s Assessment Regulations (see current Academic Regulations via www.csu.edu.au). Grades will be based on a student’s aggregate mark for all assessment components, subject to the overriding conditions that a passing grade will not be awarded to any student who fails to achieve a satisfactory performance in the final examination or in the final assignment if the subject does not have an exam.

Aggregate marks may be scaled to produce a distribution of grades which conforms to the expected norms specified in the University’s Assessment Regulations.

PREPARATION AND SUBMISSION OF ESSAYS

1. Introduction

The rationale behind assigning essays is that written expression is an important part of organisational life. Essay writing is a useful way to test the amount of reading and reading comprehension, students are often required to undertake considerable reading to prepare their essays.

Answer the question set, keep to the topic and include all relevant issues. Be clear and concise in your expression paying particular attention to sentence structure. Put yourself in the reader’s position and ask ‘Is the meaning clear?’

Go beyond what other people have said on the topic. Express their ideas in your own words but add your own ideas and opinions. To do this you need to analyse and criticise ideas where appropriate and argue your point of view. Support your arguments and opinions with extensive referencing.

Use headings for sections of your essay where appropriate. (See recent journal articles or your textbook for example.) Include an introduction in your opening paragraph and a conclusion in the final one.

Essays should be approximately the suggested length but should be compact. This means that final drafts should involve cutting back, rather than padding, an earlier draft. Brevity is also a virtue of good managers.

At least one copy should be made of the final draft copy. Keep a copy of your assignment in case the original is lost. The practice of making duplicate copies of submissions is a normal part of organisational life.

Essay deadlines must be strictly adhered to. Students should expect marks to be lost for late assignments. Punctuality is a virtue of good managers.

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2. Preparation

Prepare multiple drafts. Quality essays cannot be written on a ‘one draft only’ basis. At a minimum, the essay writer should:

Start with a rough outline of topics that will be covered in the paper. Topics should be arranged in a logical sequence. At this stage the paper will look something like a ‘rough’ table of contents.

Expand each topic into sentences and paragraphs that include all the thoughts the writer can find or create related to the topic.

Pare down this rough draft eliminating unrequited statements, correcting errors in spelling and grammar, and adding the bibliography.

In many cases one or more additional redrafts will still be required as new material is found or thoughts are reorganise

3. Layout

Paper

A4 size blank white paper should be used for typed essays.

Assignments should be word-processed using double spacing.

The front cover

The front cover of your assignment should include:

1. Your name and student number.2. Subject, assignment number and topic.3. Your tutor’s name and class time.

Margins

The left-hand margin must be at least 5 cm wide to allow for marker’s comments. Unless you specifically request otherwise the marker reserves the right to place ink comments in the margins.

Pages

All pages <except cover page if there is one> must be numbered. Use only one side of the paper. Number each page. Fasten pages securely in the top left-hand corner with staples, do not use paper clips.

Table of contents and precis

A ‘table of contents’ page is optional. Similarly a precis is optional. If a precis is written, however, it should be concise.

4. Referencing

The following are abstracts from CSU’s 2003 Referencing Guide 7th Edition which can be located at http://www.csu.edu.au/division/library.

4.1 How to Reference

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All statements, opinions, conclusions or other intellectual content taken from the work of someone else must be acknowledged, whether their work or ideas are directly quoted, reproduced, summarised or paraphrased.

The acknowledgment of someone else’s work, by means of an in-text citation, must occur at the point in your writing where you use that information. The basic in-text citation, in the author-date system, consists of the last name of an author and the year of publication of the work, in round brackets. If a direct quotation is being used, a page number is also included.

The in-text citation should be incorporated into your work in such a way as to cause the least disruption to the reader. It must also be placed so that it is clear exactly which information is being acknowledged. Where an author’s name appears naturally in a sentence, only the date needs to be enclosed in brackets. Three possible ways of incorporating an in-text citation are:

Jain (1976) refutes the theory by…The theory was refuted (Jain 1976) when it was proved…The new proof enabled the theory to be refuted (Jain 1976).

There is normally a corresponding entry in the list of references at the end of your work containing all the details of the cited work, enabling the reader to locate the source of the information you have used. For the above examples, the reader should find an entry in your alphabetically arranged list of references under Jain, PL 1976, giving the title and publication details of the work.

4.2 In-text citations

The basic in-text citation in the author-date system consists of the last name of an author and the year of publication of the work, in round brackets. There are significant variations to this, depending on the information available, the number and type of authors and the type of material being cited. The following explanations and examples cover many of these variations.

In a recent study Morris (1997) determined that…This suggestion was first mooted at the Cairo summit (Callan 1986).

4.3 Direct quotes and paraphrasing

Different disciplines have different conventions regarding the use of material directly quoted from other sources. You should minimize the number of quotations included in a paper, only including those required to support your arguments.

Paraphrasing, or expressing the meaning of a word, phrase or work in your own words (The Oxford English dictionary 2000), in order to make sense of the material, is generally preferred to direct quotes. Paraphrasing does not mean changing a couple of words in the original statement, rather, you should be giving your interpretation of what the author was stating.

If you paraphrase an author you must acknowledge the source with an in-text citation. Page numbers must be included in in-text citations if you directly quote an author’s words or paraphrased statements, if they refer to a specific part of the work or are required to identify part of a longer work.

If you directly quote an author’s words, the quotation needs to be placed in single inverted commas (‘) if it is contained within the text. The author, publication year and page number must be acknowledged.

As Nimon (1981, p. 112) states, knowledge about the community ‘is not passively gathered by some convenient form of psychic osmosis, but must be actively sought’.

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Elliot (1999, p.25) claimed that ‘the directors were deliberately understating the companies’ losses’.

‘The report was well received by the community’ (Starr 1990, p.12).

4.4 Electronic material

Electronic material can take many forms but should be treated, as much as possible, in the same manner as books or periodicals and other print based resources.

Some Internet based resources may be transient in nature, being only available in that version for a short space of time. It is therefore important to clearly indicate the version of the resource, its format, the date it was accessed or viewed and the access details or location.

Readers may not be able to access material at later date, and it is a good practice to download or print material cited from Internet based sources, in order to preserve a physical record of the information.

An Internet reference should, where possible, take readers directly to the information cited in the text, rather than a home or index page.

The URL will typically consist of the following elements:

h t t p : / / w w w . c s u . e d u . a u / d i v i s i o n / l i b r a r y / r e s o u r c e / p r o c i t e . h t m

protocol host name path to document file name

Agrigate 2002, Agrigate: An agriculture information gateway for Australian researchers, last updated 26 March 2002, University of Melbourne, viewed 8 November 2002, http://www.agrigate.edu.au/

Bruckman, A. 1994, Approaches to managing deviant behaviour in virtual communities, also available as txt, ps files, viewed 4 December 1994, ftp://ftp.media.mit.edu/pub/asb/papers/deviance-chi94.rtf

4.5 Electronic reproductions of works:

-based on a print source

Use for works where you have seen an exact electronic reproduction of the original print version, often in pdf format. The format of the citation will be the same as that for the print version, but should also include:(a) ‘electronic version’ in roman type, after the title of the work,(b) the URL.

The date viewed is not required as the work is not liable to change over time.

-newspapers and magazines

Articles from the electronic versions of some daily newspapers are retained in an archive that can be later accessed from the publisher’s Web site using a search facility. The date that the document was published as well as the date viewed should be indicated.

Goodstein, L 2002, ‘US bishops grapple with the morality of war with Iraq’, New York Times, 12 November, viewed 16 November 2002,<http://www.nytimes.com/2002/11/12/national/12CND-BISH.html>.

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4.6 Reference list formats

The list of references at the end of your essay, report, thesis or dissertation must include all of the works that you have cited in the text. The only items which should not be listed are personal communications, dictionaries, newspaper articles and encyclopedia entries that are not attributed to an author, and Acts, Regulations and law reports that are not significant to an understanding of your work.

Only works cited by you may be included in the reference list. A direct quote or paraphrase from these works reflect contributions to the intellectual content of your work.

Adam, P 1994, ‘Saltmarsh and mangrove’, in Australian vegetation, RH Groves (ed.),Cambridge University Press, Cambridge, England.

Gilbert-Rolfe, J 1995, Beyond piety: Critical essays on the visual arts, 1986-1993, Cambridge

University Press, Cambridge, England.

A list of references is different from a bibliography which may also include items relevant to the topic that are not cited in the text. The format of the entries in a bibliography should be the same as that shown for reference.

5. Appendix

Where an appendix is necessary it should be located as the last section of the essay (that is, after the reference list). However, if there are a few (less than five) pages of tables or appendix-type material, they should be located within the main body of the essay in appropriate places. Try to avoid anappendix if possible.

6. General

‘I’ or ‘the Writer’

Both the use of ‘I’ (too personal) and ‘the writer’ (too pompous) are not recommended. It is much better to make the essay totally impersonal by avoiding both. This means that careful - and in some cases, considerable thinking must be put into some sentences to achieve impersonality.

If a student regularly gets poor marks on essays, consult with the lecturer. Where students are having difficulty the lecturer will make comments on a rough draft of an essay if a student makes such a request and submits the rough draft a few weeks before the final draft is due.

Abbreviations, Non-English Phrases and Slang

If one can say it in English, one should do so. Latin phrases and other non-English colloquialisms should be avoided if possible. Abbreviations (unless a translation is made with the initial use) and slang, should be avoided.

7. Plagiarism

It is unfair to honest students that other students cheat or plagiarise. Charles Sturt University takes a serious view of plagiarism and cheating in any form of assessment, and will take appropriate steps to detect plagiarism including using electronic plagiarism detectors.

Plagiarism consists of a person using the words or ideas of another as if they were his or her own. That is, using, or attempting to use, another person’s work without acknowledgement.

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The important message here is that if you use the work of another person then it must be acknowledged. The phrase “using another person’s work” includes, but is not limited to:

- Using study guide material without acknowledgement;- paraphrasing the work of another person;- directly copying any part of another person’s work; - summarising the work of another person;- using or developing an idea or theme derived from another person’s work;- using experimental results obtained from another person’s work; and- in the collaborative projects, falsely representing the individual contributions of the collaborating students where individual contributions are to be identified.

Other forms of cheating will also be treated with the utmost seriousness. The university reserves the right to electronically scan student assignments for the purposes of verifying originality.

Penalties for plagiarism are listed in the Academic Regulations under the Student Academic Misconduct Rule. The penalties include: a caution or reprimand; awarding of zero marks in the assignment, essay, project, test, examination or other work in respect of which academic misconduct has occurred; a fail in the subject; a fine; suspended enrolment; or exclusion from the University.

The Division of Student Services has advisory information on plagiarism to assist students:

http://www.csu.edu.au/division/studserv/learning/plagiarism/

The Faculty of commerce has acquired computer software which can link electronic or scanned assignments to online data to accurately detect plagiarism. The software can also detect situations when students submit assignments which include the work of other students. The software system used by the Faculty is called “Turnitin”. The Faculty reserves the right to require submission of assignments in electronic forms. More details of this software can be found at the following web sites:

http://www.turnitin.com/

http://www.turnitin.com/static/products services/plagiarism prevention.html

Please note that we would much prefer to encourage students to submit assignments which clearly acknowledge sources rather than to detect plagiarism and to impose penalties. Recent penalties applied to students plagiarising have included automatic failure and suspension from the University. Refer to the Handbook regarding Academic Misconduct policy.

http://www.csu.edu.au/handbook/handbook03/

To assist students to understand how to reference and avoid unintentional plagiarism the Library has provided a guide to referencing assignments, essays, theses and dissertations.

 Division of Library Services 2003, Referencing Style, 7th edn, Charles Sturt University, Bathurst, NSW.

http://www.csu.edu.au/division/library/tutorial/reference/refbib.htm 

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ACADEMIC STANDARDS

As an undergraduate student in a university, you are expected to produce work to high academic standards. Written material must be presented well, be thoroughly researched, contain appropriate references, and demonstrate considerable thought and appreciation of the subject matter. It is expected that you will read the text and other literature thoroughly, and think deeply and critically about what you read. You will be expected to contribute to class discussion, with informed, intelligent insights. It is vital that you do not confine your readings to the text only. Broad reading from various academic literature, as well as management magazines and the business section of the quality newspapers will assist you in your studies.

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CRITERIA FOR GRADING AN ESSAY

Listed below are features of an average acceptable essay (C+/B-). Higher or lower grades will differ in some ways listed. Holistic grading may be based on the features listed under scope of essay.

(45%POOR FAILURE

45-50%(flawed) Failure/Pass

(acceptable)

50-64%(acceptable) Pass (average, competent)

65-74%(promising) Credit

(perceptive)

75% +(flair) Distinction/High D

(scholarly)

- - -

Unreflective personal comment, incoherent argument.Entirely copied.Complete misinterpretationOf topic.Major presentation flaws.

- - -

Topic not fully covered.Discussion too brief.Overuse of quotations, with little explanation.Insufficient support from literature.Presentation errors.

- SCOPE OF ESSAY +

A reasonably balanced summary of the issues as reflected in the course study materials.Some explanation, illustration and support is provided from the literature.Presentation meets most of the main protocols.

+ + +

A fuller, more systematic exploration of the topic which may include an attempt at critical comment or appraisal.Regular support provided from the literature.Few presentation flaws.

+ + +

Comprehensive exploration of the topic, with sound critical comment and a personal synthesis of the issues shown.Detailed support from literature including extra references.No presentation flaws.

Structure confused, not discernible, not explained.

Opening paragraph simply restates the topic.

Some major points missed.

STRUCTURE

Main arguments and conclusions outlined in opening paragraph.Definitions provided in context.Main points discussed in logically sequential paragraphs.Summary in final paragraph.

Main points elaborated. Critical evaluations.

No evidence of reading in text of essay.

No acknowledgments or bibliography.

Reading not well integrated into text of essay.

Limited acknowledgments and light bibliography.

EVIDENCE OF READING

The text of the essay shows that the course materials have been read and acknowledged.

An accurate bibliography is attached.

Extra references included. Extra references integrated into argument.

Major flaws. Minor flaws.

PRESENTATION

Most presentation details met, eg. front page, margin, legibility, citations, A4 paper, due date. Few flaws. Virtually flawless presentation.

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SAMPLE EXAMINATION PAPER

FACULTY OF COMMERCEAUTUMN SESSION EXAMINATION 2003ECO220 MACROECONOMIC ANALYSIS

DAY & DATE: TIME: WRITING TIME: Three hours READING TIME: Ten minutes

MATERIALS SUPPLIED BY UNIVERSITY: 1 x 24 page answer bookletGeneral Purpose Answer Sheet

MATERIALS PERMITTED IN EXAMINATION: Battery/solar Calculator (not programmable, no printer), 2B Pencil/Eraser, simple English dictionary.

NUMBER OF QUESTIONS : Part A: 25; Part B : 5 out of 9

INSTRUCTIONS TO CANDIDATES:

1. Enter your name and student number and sign in the space provided at the bottom of this page.2. This is a closed book examination.3. Part A: Answer all twenty-five (25) multiple-choice questions. (25 marks)4. Part B: Answer five (5) of the nine (9) questions. (75 marks)

This examination is worth 50% of the assessment for this subject.

INSTRUCTIONS TO INVIGILATORS:

THE QUESTION PAPER MUST NOT BE RETAINED BY THE CANDIDATE.

STUDENT NAME: ............................................ STUDENT NO.: ........................

STUDENT SIGNATURE: .........................................................................................

PART A (25 marks)

Answer the following twenty-five (25) questions on the multiple choice answer sheet provided.

Choose the correct (best alternative) answer to each question.

1. If the GDP deflator is less than one, then :

a) nominal GDP is larger than real GDP. b) prices in the base period are lower.c) real GDP is greater than nominal GDP.d) the quantity of output produced in the base period is larger than the quantity in the current period.

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2. In a two-sector economy, if the consumption function is C = 10 + 0.8 YD, and planned investment = 15, equilibrium expenditure is:

a) $50 billion.b) $150 billion.c) $125 billion.d) $175 billion

3. An increase in the price level will tend to cause:

a) the LM schedule to shift up (left)b) the LM schedule to shift down (right)c) the LM schedule to become more interest rate inelasticd) the LM schedule becomes less interest rate inelastic

4. After a fiscal expansion, which of the following is a complete list of variables that must increase?

a) Consumption and investmentb) Consumption, investment and outputc) Consumption and outputd) Consumption, output and the interest rate

5. When Y < Yn , we know that :

a) P > Pe

b) P < Pe

c) P = Pe

d) None of the above

6. Suppose the Phillips Curve is represented by the following equation :

The natural rate of unemployment in this economy is :

a) 12%b) 6%c) 5.5%d) none of the above.

7. An increase in the markup of price over cost will cause:

a) the PS relation to shift upb) the PS relation to shift downc) the WS relation to shift upd) the WS relation to shift down

8. Suppose the Phillips curve equation is tt-1 = - (ut - un ), then the sacrifice ratio will equal to :

a) un

b) t

c) 1d) ut - un

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t – t-1 = 12 - 2ut

9. Okun’s law tells us that there is

a) A positive relationship between the level of output and the inflation rateb) An inverse relationship between the level of output and the inflation ratec) A positive relationship between output growth and the inflation rate.d) An inverse relationship between output growth and the change in unemployment.

10. At the current level of output, suppose the actual price level is less than the price level that individuals expect. Based on our understanding of the AD-AS model, we know that

a) Output is currently above the natural level of outputb) The interest rate will tend to fall as the economy adjusts to this situationc) The normal wage will tend to increase as individuals revise their expectations of the price leveld) Rightward shift in the AD curve

11. If demand for money is very sensitive to the interest rate, then

a) The IS curve should be relatively flatb) The IS curve should be relatively steepc) The LM curve should be relatively flatd) The LM curve should be relatively steep

12. Which of the following events will cause an increase in stock prices in the current period?

a) An increase in expected future dividendsb) a reduction in the current one-year interest ratec) a reduction in the expected future one-year interest rated) all of the above

13. A consumer’s human wealth is :

a) The present discounted value of expected future after-tax labour incomeb) The sum of financial and housing wealthc) Wealth that cannot be taken from a person, by lawd) Any asset that makes life easier to live.

14. A upward sloping yield curve suggests that:

a) financial markets expect long-term rates to increaseb) financial markets expect long-term rates to fallc) i1t ie

1t d) i1t ie

1t

15. Nominal interest rate

a) Can never be negativeb) Can be negative if inflation is unexpectedc) Can be negative if inflation is very high d) Will be negative whenever the inflation rate is greater than the real interest rate

16. If the nominal interest rate rises, and the expected inflation rate falls, then the real interest rate :

a) must riseb) must fallc) cannot be determined.d) depend on the extent of increase in nominal rate.

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17. Which of the following is an example of the “shoe-leather costs” of inflation

a) A rise in the cost of primary raw materials, like leather for shoesb) An artificial rise in the capital gains taxc) The need to take more trips to the bankd) Miscalculations due to money illusion

18. An increase in money growth will cause :

a) the natural real interest rate to riseb) the natural real interest rate to fallc) ambiguous effects on the natural real interest rated) no effect on the natural real interest rate.

19. ‘Rational expectations’ assume that people :

a) Can accurately predict the future.b) Know that they cannot predict the future.c) Use all available information in predicting the future.d) Predict future by observing the past.

20. Which of the following would make the government spending multiplier larger?

a) A small marginal propensity to consume.b) A large initial trade deficit.c) A small marginal propensity to import.d) A low initial real exchange rate.

21. Suppose the policy makers want to increase output and keep net export constant. Which of the following policies would most likely achieve this?

a) An increase in government spendingb) A real depreciationc) An increase in government spending and an increase in the real exchange rated) A reduction in the real exchange rate

22. When Australian $ appreciates relative to US $, the Australian $ price of US goods :

a) Increases.b) Decreasesc) Is not affectedd) Depends on the effects of trade policies.

23. If a country changes from a flexible to a fixed exchange rate :

a) Monetary policy will become a more effective tool for changing GDP.b) Fiscal policy will become a more effective tool for changing GDP.c) Both fiscal and monetary policies will become more effective tools for changing GDP.d) None of the above.

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24. Suppose the Marshall-Lerner condition does not hold. A real appreciation will tend to cause

a) A reduction in net exports and a reduction in outputb) A reduction in net exports and an increase in outputc) An increase in net exports and a reduction in outputd) An increase in net exports and an increase in output

25. According to the hysteresis explanation, the current high unemployment in Europe is due to :

a) A high natural rate of unemployment.b) Current low levels of government spending.c) Current high levels of taxes.d) Current restrictive monetary policy.

PART B

(75 marks)

Answer any five (5) of the nine (9) following questions. All questions have equal marks.Please draw diagrams when applicable

QUESTION : B.1 (7 + 8 = 15 marks)

Explain the concepts of IS and LM curves. What effects the government policies can have on shifting the curves? Explain graphically and use examples from the Australian economy.

QUESTION : B.2 (3 x 5 = 15 marks)

Using the Aggregate Supply relation [P = Pe (1 + ) F (1 – Y/L, z)], explain how each of the following events will affect the price level ;

a) 5% increase in Pe

b) 2% reduction in Pe

c) Increase in mark-up ()d) Decrease in output (Y)e) Increase in z

QUESTION : B.3 (7.5 x 2 = 15 marks)

Show the effects of each of the following shocks on the position of the IS, LM, AD and AS curves in the medium-run. Then show the effect on output, the interest rate, and the price level, also in the medium-run. Assume that before the changes, the economy was at the natural level of output.

a) An increase in consumer confidence.b) An increase in taxes.

QUESTION : B.4 (5 x 3 = 15 marks)

Explain and comment on the following statements :

a) The Phillips Curve implies that when unemployment is high, inflation is low, and vice versa. Therefore, we may experience either high inflation or high unemployment, but we will never experience both together.

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b) As long as we do not mind having high inflation, we can achieve as low a level of unemployment as we want. All we have to do is increase the demand for goods and services by using, for example, expansionary fiscal policy.

c) In the absence of changes in fiscal or monetary policies the economy will always remain at the natural level of output.

QUESTION : B.5 (3 x 5 = 15 marks)

A consumer has nonhuman wealth equal to $ 100,000. She earns $ 40,000 this year, and expects her salary to rise by 5% in real terms each year for the following two years. She will then retire. The real interest rate is equal to 0% and is expected to remain the same in future. Labour income is taxed at a rate of 25%.

a) What is this consumer’s human wealth?b) What is her total wealth?c) If she expects to live for seven years after retirement and wants her consumption to remain the same

(in real terms) every year from now on, how much can she consume this year?d) If she received a bonus of $ 20,000 in the current year only, with all future salary payments remaining

the same, by how much could she increase consumption now and in the future?e) Suppose now that at retirement, Social Security will start paying benefits each year equal to 60% of

her earnings during her last working year. (Assume benefits are not taxed) How much can she consume this year (and still maintain constant consumption?

QUESTION : B.6 (3 x 5 = 15 marks)

For each of the following, determine whether the IS curve, the LM curve, both curves, or neither shift. In each case, assume that expected current and future inflation are equal to zero, and that no other exogenous variable is changing.

a) A decrease in the expected future real interest rate.b) The yield curve becomes steeper.c) An increase in the current money supply.d) An increase in the expected future money supply.e) An increase in expected future taxes.

QUESTION : B.7 (10 + 5 = 15 marks)

Define the real exchange rate. What happens to the price of US goods in terms of Australian goods when the real exchange rate (for Australia) appreciates?

QUESTION : B.8 (3 x 5 = 15 marks)

Consider an economy in a recession and with a nominal interest rate very close to zero. (Very similar to Japan in recent years.) Assume that there are only two relevant periods for economic decision making, corresponding to the current and the future period.

a) Draw the IS-LM curves for the current period.b) Can current monetary policy increase current output?c) Can expected future monetary policy increase current output? How and under what

conditions?d) If you were the head of the central bank, how would you convince people, firms, and

financial investors that you will implement this monetary policy in future?e) Can we infer how successful the central bank is in convincing people that it will implement

this monetary policy in the future by looking at what happens to the term structure of interest rates today?

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QUESTION : B.9 (7.5 x 2 = 15 marks)

Write short notes on any two of the following :

a) Okun’s Lawb) Modified Phillips Curvec) Purchasing power parityd) Seignorage

Answers to MCQs1. c2. c3. a4. d5. b6. b7. a8. c9. d10. b11. c12. a13. a14. a15. a16. a17. c18. d19. c20. c21. c22. b23. b24. d25. a

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