QCAA Economics Macroeconomic objectives and theory

A fiscal opportunity cost involves the choice between a budget decision chosen and the next best spending alternative, e.g. to increase defence spending instead of additional spending on education.
Significant and long-term expenditure restricts the government's capability to stabilise the economic cycle over time, because it locks in higher recurring spending. In this situation, the government would be less able to respond to peak or trough economic conditions.

expansionary/expansion phase/upswing/recovery

＄90bn

Answers could include:

• increased net exports
• lower unemployment leading to higher household income and higher consumer spending
• increased AD: government, consumer, investment spending, increased exports.
• expansionary monetary and fiscal policies.

Answers could include:

• RBA would use expansionary monetary policy and lower the cash stance to stimulate economic activity
• The lower cash rate will stimulate economic activity via the transmission mechanism.
• This will increase GDP, lower unemployment, increase consumption and investment spending and lower AUD, causing increase in exports
• There is consideration of the multiplier and a clear reference to the model.

Answers could include:

Economic policy objectives

• price stability
• full employment
• sustainable economic growth
• equitable distribution of income
• efficient allocation of resources.

Complementary objectives

• full employment and economic growth – expanding the economy requires the employment of more resources, including labour. This complements economic growth
• efficient allocation of resources and economic growth – as the economy expands, resources become scarcer and are used more intensively and efficiently.

Conflicting objectives

• price stability and economic growth – expanding the economy will increase competition for resources, increasing the cost of resources to meet additional demand
• and equitable distribution of income could reduce economic growth through increase in welfare payments
• equitable distribution of income - gains from economic growth are likely to benefit specific groups at a cost of others
• full employment and price stability – typically, during periods of full employment inflation is generally high. Inflammatory policies are often used during periods of full employment and counteract demand-pull inflation with higher cash rates or lower fiscal spending. As a result of lower aggregate demand, higher unemployment can be expected.

Answers could include:

Methods:

• labour productivity equals GDP per worker
• multifactor productivity equals output divided by all inputs – the growth in output caused by the growth in inputs.

Impacts:

• increased productivity decreases costs of production thereby achieving price stability
• increased productivity leads to increased economic growth, rising standard of living.
• higher wages from increased productivity can impact on standard of living and equitable distribution of income
• increased productivity may have negative impacts on employment in the short run. In the long-run, productivity increases incomes, leading to an increase in jobs, lowering unemployment
• increased productivity will result in higher government revenue which can be used to improve income distribution.

The model should show:

• a rightward shift in the AD curve
• a rightward shift in the AS curve;