Posted: September 3rd, 2013
The Aggregate Expenditures model and real-world data
Reading: Reserve Bank of Australia’s (RBA) Statement on Monetary Policy Aug 2013, Ch. 3 ‘Domestic Economic Conditions’ http://www.rba.gov.au/publications/smp/index.html. This link should take you automatically to the Aug 2013 report. If not, go to the RBA site and download the Aug 2013 report. Do not use earlier reports because the graphs and tables will be different.
Learning objectives for Tutorial Five:
Relating real world data to AE model
Relating real world data to AE model
1. #(Assignment question)Refer to Graph 3.2 (Household Income and Consumption), Graph 3.4 (Consumption Indicators) and Graph 3.9 (Private Residential Building Approvals). Compare the trends between year 2002 and 2013 to address the following questions:
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a. Based on the brief information given about savings ratios, what would you estimate to be the marginal propensity to consume?
b. This estimation is based on disposable income. Considering this, would the actual income multiplier for the economy would be larger or smaller than this. Why? (Hint: there are other leakages in addition to savings).
c. Assume you are using this data to advise your entrepreneurial friends what sort of specific businesses they should invest in. What do you tell them and why. (Note do not just say ‘retail’ because that is too general. Identify types of retail and why.)
d. Refer to Graph 3.1 (GDP growth), Graph 3.2 (Household income and consumption), Graph 3.8 (Indicators of Dwelling Investment) and Graph 3.9 (Building approvals). Draw two aggregate expenditure models, one for 2008 and another for 2013, todemonstrate how the trends shown in these graphs for the two different periods are reflected in aggregate expenditures, and hence equilibrium GDP.
a. Based on the brief information given about savings ratios, what would you estimate to be the marginal propensity to consume?
b. This estimation is based on disposable income. Considering this, would the actual income multiplier for the economy would be larger or smaller than this. Why? (Hint: there are other leakages in addition to savings).
c. Assume you are using this data to advise your entrepreneurial friends what sort of specific businesses they should invest in. What do you tell them and why. (Note do not just say ‘retail’ because that is too general. Identify types of retail and why.)
d. Refer to Graph 3.1 (GDP growth), Graph 3.2 (Household income and consumption), Graph 3.8 (Indicators of Dwelling Investment) and Graph 3.9 (Building approvals). Draw two aggregate expenditure models, one for 2008 and another for 2013, todemonstrate how the trends shown in these graphs for the two different periods are reflected in aggregate expenditures, and hence equilibrium GDP.
Write about 150 – 200 words total. Parts a and b can be brief (e.g. 20 – 30 words each); part c can be 100 words; part d relies on the AE diagram and needs only about 20 – 30 words of explanation.
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