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ECON1002 Introductory Macroeconomics, Semester 2, 2022

TUTORIAL 1

(Week beginning August 1)

ANSWER GUIDE

PRE-CLASS READING: LISTEN TO ‘HOW ECONOMIC MACHINE WORKS’, LINK AVAILABLE ON MODULE (UNDER ‘WARMING UP & GETTING READY’)

KEY CONCEPTS: MACROECONOMY, GDP, FLUCTUATIONS, LONG-RUN GROWTH.

DISCUSSION PROBLEMS

1. What is macroeconomics about? How is it different from microeconomics?

Macro (‘big’) economics is a study of aggregate economic behaviour. It studies why business cycles occur, what determines long-run economic growth, what determines prices (inflation), income, and (un)employment at the aggregate level. Microeconomics is a study of economic decision making at the individual, firm or industry level. Microeconomics is focused on a particular market or industry.

2. Why would macroeconomics be relevant to businesses and households? Give some examples.

A business CEO would want to know whether to invest in a new technology or production plant, whether to hire more or less workers, to expand or cut production capacity, etc. To do so, s/he would want to assess whether the economy will grow faster or slower, how government policy will affect the economy, what will happen to interest rates and inflation to decide whether to borrow more from banks, and so on. Households would also want to know whether they have to save more or less, whether to buy or rent a house, whether to supply more labour hours or not, and so on. These decisions are all affected by the macroeconomic conditions and policies. Simple examples are everywhere. An international student wants to know whether the Australian dollar would rise or fall in value. A local student would want to know whether to study longer or enter the labour market sooner by assessing the state of economy and job prospects.

3. Visit the following website by the Reserve Bank of Australia, Australia’s central bank, and download the statistical Table H1 under ‘Output and Labour’:

https://www.rba.gov.au/statistics/tables/index.html?v=2022-02-14-16-49- 40#output-labour

a. How much did Australia’s economy grow in terms of real GDP from ‘Dec-2019’ (pre-pandemic) to ‘Mar-2022’ (most recent data)? [Hint: See Table H1 ‘Column B’].