ECON1000 Introductory Economics MRA Part B

MRA ‘Part B’ - Assessment Overview (worth 36 Marks):

The time window for Part B of the ‘macroeconomic review and analysis’ (MRA) is:

Instructions:

• Part B of MRA is a downloadable ‘take-home’, ‘open book’ assessment where you can pace yourself to answer the questions. Refer to the ‘ECON1000 S2 2021 MRA Hints and Tips’ recording/slides for suggestions on how to do well in Part B of MRA.
• The student, by yourself, has 5 days (84 hours) to complete Part B of MRA under normal circumstances.
  • Answer ALL short-answer style questions in the Word document provided.
  • Your answers need to be typed, but diagrams must be hand-drawn into an editable Word document (or PDF) and then uploaded to Turnitin by the due date.

Part B. SHORT ANSWERS: Analysis and Application [36 marks]

[There are three (3) main questions to be answered with sufficient explanations and where relevant using well-labelled, hand-drawn diagrams with accuracy.]

Q1 – Credit-constrained Australian Households

Critical social commentators argue that the level of support offered by the Jobseeker coronavirus supplement during 2020 was an important government policy in Australia which should have been sustained, as mentioned in the articles below (listed in chronological order):

• Moschion, Julie et al. (2020) ‘Jobseeker payment: economists on why it’s dangerous to cut the coronavirus supplement’, The Guardian, July 21, available:

https://www.theguardian.com/australia-news/2020/jul/21/jobseeker-payment-economists-on-why-its-dangerous-to-cut-covid-19-welfare-subsidy

• Whiteford, Peter and Bruce Bradbury (2021) ‘The $50 boost to JobSeeker will take Australia’s payment from the lowest in the OECD to the second-lowest after Greece’, The Conversation, February 24, available: https://theconversation.com/the-50-boost-to-jobseeker-will-take-australias-payment-from-the-lowest-in-the-oecd-to-the-second-lowest-after-greece-155739
• Martin, Peter (2021) ‘The true cost of the government’s changes to JobSeeker is incalculable’. The Conversation, March 30, available:

https://theconversation.com/the-true-cost-of-the-governments-changes-to-jobseeker-is-incalculable-its-as-if-it-didnt-learn-from-robodebt-158059

• Bessell, Sharon (2021) ‘Australia was a model for protecting people from COVID-19 — and then we dumped half a million people back into poverty’. The Conversation, August 12, available: https://theconversation.com/australia-was-a-model-for-protecting-people-from-covid-19-and-then-we-dumped-half-a-million-people-back-into-poverty-165813

Use a single figure with time on the horizontal axis and income and consumption on the vertical axis to illustrate and elaborate on the way in which credit-constrained households typically responded to the rise and fall in unemployment benefits over 2020 to 2021. In your answer, discuss the disadvantages faced by these types of households over those who could smooth their consumption.

 [300 to 400 or so words is the suggested amount for Q1]

  [8 marks for quality of explanation, including figure]

Apply key economic concepts taught in Module L3 in ECON1000 S2 2021, where relevant.

Refer to key sentences and ideas from the articles where relevant to support your analysis.

Q2 – Fiscal and Monetary Policy Responses in Australia to a Negative Shock

Consider the policy responses by the Federal government and the Reserve Bank of Australia (RBA) to the pandemic-induced recession of the first half of 2020. Fiscal stimulus measures and expansionary monetary policy have played a critical role in promoting economic stability and preventing a deep recession, as pointed out in these articles (listed in chronological order):

On fiscal policy,

• Hutchens, Gareth, Stephanie Chalmers and Michael Janda (2021) ‘GDP figures show economy shrank in 2020 but grew 3.1 per cent in December quarter’, ABC News, March 18, available: https://www.abc.net.au/news/2021-03-03/gdp-december-quarter-2021/13210412
• Hutchens, Gareth (2021) ‘NSW has a plan to reopen after COVID lockdown, but will Australia’s economy bounce back this time?’, ABC News, September 9, available: https://www.abc.net.au/news/2021-09-09/will-the-economy-bounce-back-strongly-from-these-lockdowns/100443392

On monetary policy,

• Holden, Richard (2021) ‘The RBA wants to cut unemployment, and nothing — not even soaring home prices — will stand in its way’, The Conversation, May 7, available: https://theconversation.com/vital-signs-the-rba-wants-to-cut-unemployment-and-nothing-not-even-soaring-home-prices-will-stand-in-its-way-160171
• Jericho, Greg (2021) ‘Things have changed in Australia. But the interest rate is unlikely to for some time’, The Guardian, August 3, available: https://www.theguardian.com/business/grogonomics/2021/aug/03/things-have-changed-in-australia-but-the-interest-rate-is-unlikely-to-for-some-time

1. Assume the size of the multiplier is 1.6. Use the multiplier model and Phillips curve diagram to illustrate and explain in detail how the aggregate demand function has shifted out from recession to a present-day recovery. In your answer, comment on the RBA’s current and future concern for unemployment and inflation.

[400 to 500 or so words is the suggested amount for Q2a] [12 marks for quality of explanation, including linked diagrams]

1. Assume there were no fiscal stimulus measures to the macroeconomic shock from the coronavirus in 2020-2021, and it was left solely to a monetary policy response. Elaborate on what you think would happen to such an economy.

                                     [250 or so words is the suggested amount for Q2b]

                                                                [4 marks for quality of explanation]

Apply key economic concepts taught in Modules L4, L7, L8 in ECON1000 S2 2021, where relevant.

Refer to key sentences and ideas from various articles where relevant to support your analysis.

Q3 – The US Economic Recovery in the WS/PS Model

For decades since the 1980s the US has experienced a situation of rising monopoly power, declining worker power and a relatively low level of labour productivity. However, consider the following short-term changes to that trend evident since the pandemic of 2020:

(i) greater worker bargaining power, as reported here (listed in chronological order):

• DiVito, Emily and Aaron Sojourner (2021) ‘Americans are more pro-union – and anti-big business – than at any time in decades’, The Guardian, May 13, available: https://www.theguardian.com/commentisfree/2021/may/13/americans-are-more-pro-union-and-anti-big-business-than-at-any-time-in-decades
• Popken, Ben (2021) ‘American workers rush to take advantage of pandemic bargaining power’, NBC News, August 22, available:

https://www.nbcnews.com/business/business-news/american-workers-rush-take-advantage-pandemic-bargaining-power-n1277309

• Dmitrieva, Katia (2021) ‘A Big Fight Lies Ahead for U.S. Labor to Lock In Pandemic Gains’, Bloomberg, September 2, available:

https://www.bloomberg.com/news/articles/2021-09-02/a-big-fight-lies-ahead-for-u-s-labor-to-lock-in-pandemic-gains

• Greenhouse, Steven (2021) ‘Striketober’ is showing workers’ rising power – but will it lead to lasting change?’, The Guardian, October 23, available:

https://www.theguardian.com/us-news/2021/oct/23/striketober-unions-strikes-workers-lasting-change

(ii) greater productivity growth, as reported here (listed in chronological order):

• Irwin, Neil (2021) ‘Will the Pandemic Productivity Boom Last?’, New York Times, August 10, available:

https://www.nytimes.com/2021/08/10/upshot/will-the-pandemic-productivity-boom-last.html [Free access, see Reading List on ECON1000 Blackboard site]

• Long, Heather (2021) ‘The U.S. could be on the verge of a productivity boom, a game-changer for the economy’, Washington Post, August 18, available: https://www.washingtonpost.com/business/2021/08/18/us-productivity-boom/

In this context, use the WS/PS model to illustrate and explain in some detail what happens to the US economy recovering from COVID-19 over the next few years. In your diagram, begin the economy in 2020 where pandemic containment policies cut global production which led to mass unemployment. Assume that productivity growth is sustained over the next few years.

            [400 to 500 or so words is the suggested amount for Q3]

              [12 marks for quality of explanation, including diagram]

Apply key economic concepts taught in Modules L5 and L6 in ECON1000 S2 2021, where relevant.

Refer to key sentences and ideas from various articles where relevant to support your analysis.