Instructions for ECON1102 Chart Book - 2014 Session 1

You are asked to construct a report. A Mockup of the report (Chartbook) is attached. Charts should be of the standard set out (labelling, etc.), including with your surname and student number as per the dummy Chart. You must construct your own Charts – no marks will be given for Charts which are borrowed. For your Tables, you can copy the Tables on page 3 into your document and then fill in the missing figures.

You are asked to find some macroeconomic variables from the Reserve Bank of Australia website, and plot their time-series using Excel or PowerPoint (NB: excel files are embedded in PowerPoint (left click when highlighting the chart in the PP and the “edit data” tab should appear; the PP reads the selected data in the excel spread sheet). You then copy and paste the charts into your word document.

You can use the PowerPoint chart file provided in the Moodle. When you have formatted your first chart (your name, student number and any cosmetic changes + appropriate data and labels), you should be able to copy the format in that to your other charts (Tip: copy and paste this first chart as new chart, then insert different data and edit appropriately).

You are also asked some questions which relate to the charts and tables you create and to which you are required to provide short answers. Your answers must be 12 font and be broken into appropriate paragraphs. There is an art to concise but clear answers. About 500 words should be maximum.

The answers and charts are to be collated in a word document (SEE mock-up in blackboard). You are to submit the Chartbook online by 23.59pm on 1st June, and the identical hardcopy is to be handed in to the Assignment Box (ASB ground floor, West Wing) by 4pm Monday 2nd

June.

Questions

1. We can define the natural rate of unemployment as 4.75% and the RBA inflation target (target SRAS) as 2.5% (mid of RBA’s 2-3% range). Referring to your Figure 1 for inflation and Figure 2 for unemployment, complete the AD-AS diagram by indicating the AD, the SRAS lines, and the LRAS lines [marking their crossing points A and B] where you think the economy was in January 2011 (A) and January 2014 (B). Explain why you have nominated these points.(Hint: mark the points A, B first then that should tell you the appropriate AD/SRAS lines.)

2. In the aftermath of the GFC (August 2008), the Government increased government spending and cut taxes to stimulate the economy. That policy was predicated on the unemployment rate rising to 8% (Budget 2009-10) – even with the benefit of the fiscal stimulus, and monetary policy easing (Chart 3). Observing the Budget forecasts (2009-10) against actual outcomes in Table 1, and the actual rates of unemployment in Table 2,

consider these two questions. Can we judge the fiscal stimulus to have worked? Explain if there are any problems highlighted with discretionary fiscal policy?

3. In your Figure 3, we can see that the direction of monetary policy since 2012 has been expansionary. Which element of private investment (Table 1) is likely to be more responsive to this, and why? The Budget forecasts 2013-14 contend that a contraction in growth of business investment will be offset by higher dwelling investment. Compare the growth rates of business investment, dwelling investment and of consumption growth during the GFC period 2008-09 to 2010-11, with the Budget forecasts 2009-10 and discuss the contention.

Tables and Figures to Construct

For the RBA data, link is: http://www.rba.gov.au/statistics/tables/index.html

Chart 1: Underlying (core) inflation 2002-2014 - quarterly

Underlying (or core) CPI is here defined as CPI excluding volatile items (RBA Table G1 column E). RBA has calculated the annual rate for you - % change for a quarter on same quarter of preceding year. Start your series at December quarter 2002, with March quarter 2014 your last quarterly point.

The RBA’s inflation target is 2-3%. Add two lines on your figure for this and include in legend. One way is have columns of 2% and 3% in your excel file which your chart reads.

Chart 2: Unemployment rate 2002-2014 – monthly, seasonally adjusted

This figure will be an update and modification of tutorial week 3 figure you created from RBA Table G7. Start your series at the month of September 2002. Your final monthly data point will be April 2014. Note that recent months will probably be revised, so use the latest numbers only. Estimate the average unemployment rate for the whole period and add a line for that. Also add a line for the “full employment” unemployment rate at 4.75%. Add a text box which sources as follows: “Natural rate of unemployment [full employment] probably around 4.75% (mid of range of 4.5-5% given).”

Chart 3: Nominal and Real Cash rate

Nominal cash rate is from RBA Table F1 column B. Calculate the quarterly average cash rate from the monthly series, e.g. June quarter = average of April, May , June. From that use your annual underlying (core) inflation rate for the same quarter to calculate the real cash rate (hint: Fisher equation). Start your series at December quarter 2002, with March quarter 2014 your last point.

Estimate the mean real cash rate for your period 2002-2014 and include a line for that in your chart.

Tables 1 and 2 on the Economy

See Tables 1 and 2 on page 4. You can copy this table into your document. You are given the Budget forecasts. For the actual outcomes, you are required to calculate the missing figures. On page 5 you are given the definitions of the various components of GDP in the table and the relevant columns in the RBA statistical tables. The source for this data is as for Tutorial 1, Question 5 from the RBA website, so you should be familiar with the data.

You will need to calculate the growth rates for the fiscal years. Growth compares sum (or average) of September/December/March/June quarters’ estimates for each fiscal year.

Some figures are given – if your estimates match these you will know you are on the right track.

Table 1: Actual Outcomes for Economic Growth for Fiscal Years 2007-08 to 2012-13 and the Budget-time forecasts of May 2013 – Real terms, % Growth Rates/% Contribution to Growth

Household

Consum

ption

Dw

elling Investm

ent

Business

Investment

Private

Spending

Governm

ent S

pending

Inventories Contributio

n Gross

National

Expenditure

Exports

Imp[orts

Net E

xports C

ontribution

GDP

Term

s of T

rade

2007-08 4.7 1.8 10.7 5.7 4.5 0.1 5.6 3.6 14.5 -1.7 3.7 5.7

2008-09 -0.7

2009-10 0.4

2010-11 0.4

2011-12 0.1

2012-13 2.0 -0.1 6.0 2.8 -1.4 -0.3 1.6 6.0 0.5 1.1 2.6 -9.82009-10 Budget Forecasts (May 2009)

2009-10 -0.25 0 -18.5 -4 7.75 0.25 -1.25 -4 -6.5 0.75 -0.5 -13.25

2010-11 1.75 11.5 3.5 2.75 -0.5 0.75 2.5 4.5 6.5 -0.5 2.25 0

2013-14 Budget Forecasts (May 2013)2012-13 2.5 0.5 10.5 4 -0.5 0 3 7 5 0.5 3 -7.5

2013-14 3 5 4.5 3.5 0 0 2.75 6.5 6 0 2.75 -0.75

2014-15 3 5.5 1 2.75 0.5 0 2.25 7 3 1 3 -1.75

Sources: RBA Statistical Tables G4 and G11; and Commonwealth Budget Papers 2008-09 (May 2009) and 2013-14 (May 2013)

Table 2: Labour Force and Inflation Outcomes and the Budget-time forecasts of May 2013Employment growth Unemployment rate

Participation rate

Consumer Price Index

% change % % % changeJun-

2008 3.1 4.2 65.6 4.0Jun-

2009Jun-

2010Jun-

2011Jun-

2012Jun-

2013 1.2 5.7 65.1 2.52009-10 Budget Forecasts (May 2009)

Jun-2010 -1.5 8.25 64.75 1.75Jun-

2011 0.5 8.5 64.25 1.5

2013-14 Budget Forecasts (May 2013)Jun-

2013 1.25 5.5 65 2.5Jun-

2014 1.25 5.75 65 2.25Jun-

2015 1.5 5.75 65 2.25

Sources: RBA Statistical Tables G1 and G7; and Commonwealth Budget Papers 2008-09 (May 2009) and 2013-14 (May 2013).

Do not include the notes below in your report:

Table 1 Notes

Household consumption (C) - RBA Table G11 column B;

Dwelling investment (DI) - RBA table G11 column C;

Business investment (BI) - RBA table G11 columns D+E+F;

Private spending = C+I = C+DI +BI;

Government spending (G) - RBA table G11 column G;

Inventory contribution ( △ Inv.) = percentage point contribution of change in inventories to GDP/GNE – in textbook for usually treat as part of I (investment) but as the Budget treats this as a separate item, that is done so here;

Gross National Expenditure (GNE) = C+I+G+ △ Inv. - RBA table columns B to I;

Exports (X) - RBA table column J);

Imports (M) - RBA table column K);

Net export contribution (X-M) = percentage point contribution of change in net exports to GDP growth (see below);

ToT = terms of trade - RBA Table G4 column F).

Actual outcomes are from RBA Table G11 and G4 (for terms of trade), and are for fiscal years. Growth compares sum (or average) of September/December/March/June quarters’ estimates for each fiscal year.

To calculate the contribution of net exports, calculate X-M for each year (subtract M from X), then calculate the change in X-M from year 1 to year 2 and divide that figure by the GDP estimate for year 1. Convert that to percentage format (i.e. multiply by 100).

Table 2 Notes

Employment Growth - RBA Table G7 column G

Participation rate - RBA Table G7 column D

Unemployment rate - RBA Table G7 column I

Consumer Price Index (CPI) - RBA Table G1 column B

CPI inflation is % change for June quarter on June quarter of preceding year. For employment calculate the June quarter average for each year by averaging the April-June months, then estimate growth rate. The unemployment rate and participation rates are %

as at the June quarter. For unemployment/participation rates calculate average for the April-June months.