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UNIVERSITY OF SOUTH AUSTRALIA SCHOOL OF COMMERCE   ECON1007 MACROECONOMICS STUDY PERIOD 5, 2020

Economics

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UNIVERSITY OF SOUTH AUSTRALIA

SCHOOL OF COMMERCE  

ECON1007 MACROECONOMICS

STUDY PERIOD 5, 2020.

Internal and External students  

Written ASSIGNMENT

ASSIGNMENT TOPIC

Assignment 2            Written assignment

Weighting:	25%
Length	Word limit: 1250-1500 words in total (including diagrams, references and all text)
Due Date:	Saturday 10 October 2020, 11.00 pm
Topic	Read the news article below and answer all questions.

  

Bean counters believe nation can dodge depression, but no sharp rebound

 

By Ross Gittins: May 30 2020 Sydney Morning Herald

 

 

 

Although the virus has delayed the budget until October ….  last week the secretary to the Treasury dropped some big hints on what to expect.

In evidence to the Senate committee inquiring into the response to the virus, Dr Steven Kennedy started with the outlook for the labour market. The latest figures from the Australian Bureau of Statistics are for the four weeks up to mid-April.

In round figures, they show that 900,000 people lost their jobs during the period (although 300,000 gained jobs), 1 million people worked fewer hours and three-quarters of a million kept their jobs but worked no hours (most of them protected by the JobKeeper wage subsidy scheme).

So that’s a total of 2.7 million workers – about one worker in five - adversely affected by the snap recession. Total employment fell by 4.6 per cent, but total hours fell by twice that – 9.2 per cent, telling us much of the pain was borne by part-time workers. The rate of underemployment (mainly part-timers working fewer hours than they want to) leapt by almost 5 percentage points to 13.7 per cent.

The “good” news is, Kennedy thinks that’s most of the collapse in employment we’re likely to see. We may get a bit more in the figures for May, and maybe even a fraction more in June. But that should be it.

The trick, however, is that though the underlying position won’t be getting much worse, we’ll see the rate of unemployment shooting up. It had risen by “only” 1 percentage point to 6.2 per cent by mid-April, but Kennedy expects it to be closer to 10 per cent by mid-June. (And it would have gone a lot higher but for the JobKeeper scheme.)

Such a strange outcome – it’s not actually getting much worse, but the unemployment rate is rocketing – is explained by the strange nature of this “coronacession”: a recession caused by the government, acting under doctors’ orders.

In an ordinary recession, almost all the people who lost their jobs in April would have immediately started looking for a new one, and so met the bureau’s tight definition of being unemployed. This time, most people didn’t start looking because many potential employers had been ordered to cease trading and, in any case, you and I had been ordered to stay in our homes and rarely come out.

As the lockdown is eased, however, people will start actively looking for work, and the bureau will change their status from “not in the labour force” to unemployed, making the figures look a lot worse.

On Wednesday, the bureau will publish the “national accounts”, showing what happened to real gross domestic product – the change in the economy’s production of goods and services – during the March quarter. [Note, GDP fell 0.3% in the March quarter- MS.]

Kennedy is expecting real GDP to have fallen a bit, mainly because of the bushfires and the ban on entry to Australia by foreign tourists and overseas students. He’s expecting the big fall to come in the June quarter, and for the combined fall since December to be as much as 10 per cent.

If it’s anything like that big it will be humongous. The total contraction in the last recession, in the early 1990s, was just 1.5 per cent. But, as with the job figures, Kennedy is expecting the contraction in GDP to end with the June quarter.

The big question is, what happens after that? With most of the economy reopened – but, of course, our borders still closed to international travel – will most of us be back at work and producing and spending almost as normal? That is, will the period of the economy dropping like a stone be followed by it bouncing back like a rubber ball, producing a graph that looks like a big V?

No.

Kennedy told the Senate committee “I’m not predicting a V-shaped recovery in any sense, but the way we entered this [downturn], and the nature of this shock, give me some hope that if governments respond well, particularly through their fiscal levers [that is, their budgets], we needn’t have what’s called the L-shaped recovery”.

That is, economic activity drops a long way, but stays there without growing. Kennedy says the L-shape is probably what people would think of as more like a depression.

Kennedy noted that, according to separate figures from the bureau, the number of jobs in the accommodation and food sector fell by more than 25 per cent in just the three weeks to April 4, while jobs in the arts and recreation services sector fell by almost 19 per cent.

He drew some hope from the fact that the sectors worst affected by the lockdown are “quite dynamic”. “They’re sectors that have high turnover in businesses coming and going, quite high turnover in employees and a lot of casuals,” he said.

So, in the right conditions, they had the potential to re-establish quickly. In contrast, it was hard to re-establish a manufacturing plant quickly. In this strange recession, manufacturing, construction and mining had been allowed to continue without much disruption.

If you rule out V-shaped and L-shaped recoveries, what’s left is a U-shape. You go down fast but bounce along the bottom before going back up. But our success in suppressing the virus means we’ve been able to start dismantling the lockdown earlier than the six months initially expected.

“So in some ways we’re actually a little more optimistic [than we were] – maybe we just squeeze the U together a bit,” he said.

That’s looking at our domestic economy. Looking at the prospects for the global economy, it’s possibly worse than he first thought. But even here Kennedy finds some source of hope. It so happens that our major trading partners – China, South Korea and Japan – are among the countries that have done better at beating the virus and getting back to work.

 

READ THE ABOVE ARTICLE AND ANSWER THE FOLLOWING THREE  QUESTIONS:

 

Question 1.

Consider the statement: 

The trick, however, is that though the underlying position won’t be getting much worse, we’ll see the rate of unemployment shooting up. It had risen by “only” 1 percentage point to 6.2 per cent by mid-April, but Kennedy expects it to be closer to 10 per cent by mid-June. (And it would have gone a lot higher but for the JobKeeper scheme.) Answer the following, using information from the article:

1a Explain why Kennedy sees the rate of unemployment ‘shooting up’ to 10 per cent. In your answer discuss the significance of the participation rate in affecting the mid-April

unemployment rate.                                                                                          Max 5 marks

 

1b If, as the Government currently states, the JobKeeper allowance is discontinued in early September, use the Aggregate Expenditure model to discuss the range of impacts this may have on aggregate expenditure in this year’s December Quarter (this is the period from September to December 2020). Be sure to outline the economic reasoning behind your answer and to clearly reflect this in your AE model depiction.                        Max 5 marks

 

 

Question 2.  

JobKeeper was designed to keep people employed and ‘sustain’ the economy through the enforced lockdown.  Using the static AD/AS model explain.

2a Use the static AD-AS model to explain how the JobKeeper policy worked to sustain the economy (even though unemployment increased).               Max 5 marks 

2b Why does Kennedy expect a ‘U’ shaped recovery rather than a ‘V’ shaped  recovery? In your answer explain the difference between the two types of recoveries.     Max 5 marks

 

 

Question 3    

3a  Using the dynamic AD/AS model, explain why Kennedy is concerned about the state of the global economy. What difference might it make to the Australian economy if the trading relationship between China and Australia deteriorates as political tensions continue to increase?                                Max 5 marks

 

3b  Assuming that a vaccine is discovered in say 18 months, discuss what might have happened to the LRAS curve over the period of the COVID crisis.              Max 2 marks 

             

 

 

AIMS AND OBJECTIVES OF MACROECONOMICS ASSIGNMENT

The assessment is primarily designed to advance your understanding and application of economic theory to real world situations. Particular attention is given to using particular models (i.e. AE model and static/dynamic AD/AS models) to analyse real world scenarios.

 

ASSESSMENT CRITERIA

Assessing  the quality of submitted material requires judgment by academic staff. Rather than a simple formulaic approach, markers combine a number of elements to assess the quality of an assignment. In broad terms, assessment of your assignments will take into account:

 

• Did you answer the questions that were asked? 
• Was the question answered fully or only in part?
• Does your answer demonstrate an understanding and correct application of economic concepts?
• Where required, did you use a model and graphical representation to analyse the question?
• Is the assignment written well?; Is it logical in sequence? Does the argument make sense?
• Do you provide theoretical support for the arguments used? 
• Does the answer demonstrate a good grasp of the issues, or only a partial understanding?

Is the response thoughtful and sophisticated or basic and simplistic?

• Where appropriate, were sources properly cited and referenced?
• Is the presentation at a professional standard or school quality?

 

For access to learning resources associated with assignment preparation see the learning hub located at: https://lo.unisa.edu.au/course/view.php?id=4074

 

REFERENCES AND PLAGIARISM

You are expected to answer written questions in your own words. In written academic work you must acknowledge the source of your information (including set textbooks) but only those references that are actually used should be cited. You should use the Harvard referencing system. (see: https://lo.unisa.edu.au/course/view.php?id=3839 )

 

ACADEMIC INTEGRITY

The university is committed to academic integrity and has policies and procedures in place to ensure academic integrity. More information about academic integrity (AI) can be found in the Assessment policies and procedures manual at: http://www.unisa.edu.au/policies/manual/ Or visit the AI Module website https://lo.unisa.edu.au/mod/book/view.php?id=252142  

ANY WORK CONTAINING WORK THAT HAS BEEN JUDGED TO CONTAIN PLAGIARISM WILL SCORE ZERO MARKS; SERIOUS ACADEMIC MISCONDUCT MAY RESULT IN SUSPENSION FROM THE UNIVERSITY. 

 

PENALTIES FOR LATE ASSIGNMENTS

Late assignments that do not have approved extensions will incur a penalty: for every day late, ten per cent will be deducted. No assignments will be accepted after 7 days past the due date.

             

             

Assessment feedback
Course:   Macroeconomics                    Code: Econ 1007                                     Written Assessment Student Name:
AIMS AND OBJECTIVES OF MACROECONOMICS ASSIGNMENT The assessment is designed to advance your understanding and application of economic theory to real world situations. Particular attention is given to using economic models and definitions to analyse real world scenarios. LEVEL
Criteria	Outstanding (outstanding performance)	Good (exceeds core requirements)	Satisfactory (meets core requirements)	Unsatisfactory (does not meet core requirements)
Answers the question using concepts from the course	Succinct, relevant & outstanding explanation to support answers	Good, relevant models and definitions to support the answers	Satisfactory, demonstrates relevant models and theory to support answers	Explanations do not address the question, or use incorrect models or definitions
Demonstrated knowledge of definitions and concepts throughout	Outstanding, clear, at the appropriate point in the argument, linked well	Very good, but without demonstrating mastery of every element	Good, clear and fundamentally sound – but lacking either conciseness, or with some minor errors	Unclear, or illogical or demonstrating faulty understanding, or errors in basic concepts or models
Demonstrated knowledge of models and links to text	Outstanding, clear, at the appropriate point in the argument, linked well	Very good, but without demonstrating mastery of every element	Good, clear and fundamentally sound – but lacking either conciseness, or with some minor errors	Unclear, or illogical or demonstrating faulty understanding, or errors in basic concepts or models
Academic writing	Overall very well written, with clear explanations. Professional level	Generally, well written , logical and clear. High quality	Satisfactorily written but with errors, or showing evidence of requiring further editing	Poorly written. Unclear,
Summary Comments

 

Summary Marks:	Question 1			/8
	Question 2			/10
	Question 3			/7
	Total			/25