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ECON2020 Assignment 1
Instructions Assessment Task Inflation Report Group or Individual Individual Weighting 20% of course (100 marks re-weighted to 20%) Word Limit 1500 words (+100 words buffer), excluding cover sheet and reference list Due Date 21 April, 4 pm Marking Rubric Blackboard > Assessments > Assignment 1 > Marking Rubic Submission Submit your assignment as a Word document on Turnitin. The Turnitin link can be found in: Blackboard > Assessments > Assignment 1 Academic Integrity UQ has strict rules against academic misconduct, including cheating, plagiarism, colluding and solicitation. You are responsible for maintaining the highest standards of academic integrity in your work. Please read and familiarise yourself with these rules: PPL 3.60.01 Student Code of Conduct PPL 3.60.04 Student Integrity and Misconduct
In 2022, Australia experienced CPI inflation of 7.8% p.a., much higher than the Reserve Bank of Australia’s (RBA) inflation target of between 2 to 3%, and far exceeding 2020’s 0.9% CPI inflation. Your main task in this assignment is to explain the domestic factors contributing to the high rate of inflation experienced in 2022, with the IS-LM and AD-AS models. You will also need to evaluate the impact on of monetary and fiscal policies implemented in 2022. Given that the course material (up to Topic 6) assumed a closed economy, you may make the same simplifying assumption that Australia is a closed economy, especially for the main part of the assignment. This is why you only need to consider domestic factors in this assignment. In the final part of the of assignment, you will need to evaluate whether inflation experienced in the Australian economy in 2022 can be attributed solely to domestic factors. [Instructions Continues On Next Page] 3 Research Essay Structure Please note: • You must use the essay template on Blackboard > Assessment > Assignment 1 > Template • You must include the cover page (in the template) in your submission. Do not write your answer on the cover page. Formatting Requirements: • Font: Arial or Calibri • Font Size: 11 • Line Space: 1.5 Word Count: • 1500 words + 100 words buffer o Penalties apply for word count >1500 words. • Word count limit does not include: o Coversheet o Bibliography (Reference List) o Section Headings o Figures, including Figure headings and short notes underneath figures (e.g. Source: RBA (2021) Referencing Style: APA 7th Referencing Style • Direct quotes or paraphrased quotes must be referenced. • Quotes cannot exceed 10% of the word count. Figures • You can include up to six (6) figures (diagrams, graphs or tables) in this assignment. o You can use a mixture of diagrams, graphs or tables, so long as the total number is no more than six. • You can combine two or more diagrams into a single figure if doing so makes sense, or if such combinations have appeared in the teaching material. o For example the combination of IS-LM and AD-AS diagrams in Lecture 4 Slide 49. • You can use more than one variable in a graph of table – but please keep the number of variables limited with an eye to legibility, o No extra marks will be provided for irrelevant information. • You must produce your own figures from data. o You must keep a copy of your data file/spreadsheet for verification. • Copied figures will be penalised. Similarity Report • Your essay should have a Turnitin similarity index value of 15% or less. • Penalties may apply for similarity index values >15%. • Please refer to this link for more information on the Turnitin similarity report. [Instructions Continues On Next Page] 4 Penalties Late Submission: • 4PM 21 April is the submission deadline. o You should to start the uploading process at least 30 minutes before the deadline (i.e. at 3:30PM) to ensure that your assignment is successfully uploaded by the deadline. • When an extension has not been previously approved, a penalty of 10 marks (out of 100) will be deducted for every 24-hour block (up to 7 calendar days, after which no marks will be awarded for a submission). o 10 marks penalty if submitted within 24 hours after the deadline. (i.e. 4:01PM 21 April to 4:00PM 22 April) o 20 marks penalty if submitted between 24 and 48 hours after the deadline. (i.e. 4:01PM 22 April to 4:00PM 23 April) o … o After 168 hours (7×24 hours) after the deadline, 0 marks will be recorded. (i.e. after 4:00PM 22 April) High TurnItIn Similarity Index: • 15%-20%: as much as 5 marks (out of 100) may be deducted. • 20%-25%: as much as 10 marks (out of 100) may be deducted. • >25%: as much as 100 marks (out of 100) may be deducted. • Besides marks deducted, cases of suspected plagiarism will be reported to the School’s Integrity Officer for investigation, in accordance with the school’s plagiarism policy. • Please refer to this link for the UQ School of Economics’ plagiarism policy. • Similarity index values change slightly over time as Turnitin continuously add new materials into its database, e.g., as more students have submitted their assignments. The best strategy is to keep your similarity index value sufficiently low, e.g., below 12, so that even though it goes up a little bit after submission it will not exceed 15. • Turnitin will ignore a small amount of unavoidable similarity (e.g., commonly used terms). • Turnitin will not include references in its similar score calculation. Copying Figures • For each copied figure (diagrams, graphs, or tables): 15 marks (out of 100) will be deducted. o The penalty applies even if references are provided for the copied figures. • Besides marks deducted, cases of suspected plagiarism will be reported to the School’s Integrity Officer for investigation, in accordance with the school’s plagiarism policy. Exceeding Word Count Limit (>1600 words) • 100 words was allocated as a buffer to the 1500 word limit. • 5 marks for every 50 words exceeding 1600 words. o E.g. 5 mark penalty for 1602 words, 10 mark penalty for 1651 words. • No marks deducted for <1200 words. [Instructions Continues On Next Page] 5 Report Structure Your task for this assignment is to identify the domestic factors resulting in the high rate of inflation experience in Australia for 2022. Your analysis will need to cover the points as detailed in the 3 (three) parts below: Part 1: Describe pattern of Australian macroeconomic performance (~500 words) a) Concisely describe the pattern of macroeconomic performance observed in Australia between January 2019 to December 2022. You should cover (at least) real GDP per capita growth, the unemployment rate and the CPI inflation rate over this period. b) Use the impacts of the COVID-19 pandemic (and subsequent moderation of its effects) to explain the pattern of macroeconomic performance described above. − You should consider when the COVID-19 pandemic started in Australia, and the pandemic’s effect began to moderate. − The chronology of COVID related social distancing measures and case load numbers will also be useful in your analysis. c) Explain why the high rate of Australian inflation observed in 2022 can be at least partially attributed to changes of Australian aggregate demand. − Justify your explanation with the pattern of macroeconomic performance observed. − You should use the AD-AS model in this part of the analysis. I.e. is the pattern of macroeconomic variables consistent with a shift of aggregate demand? Did aggregate demand increase or decrease? And so on. • You can use the upward sloping short-run aggregate supply curve (as taught in introductory macroeconomics courses) in the AD-AS analysis for this assignment. Note: All factual claims should be supported by a reference. (E.g. if you mention that Australia imposed restrictions on international travelers in March 2020, then you need to cite a reference that supports this claim.) [Instructions Continues On Next Page] Tips: • The graphs in this “Chart Pack” (link) from the RBA might be useful in formulating your response to Part 1 (i.e., to identify the important trends in the macroeconomic data). • But you cannot copy-and-paste the chart pack graphs directly in your assignment. • Please be reminded that you must create your own graphs or tables. To do so, you will need to obtain the “raw” macroeconomic data from the ABS. (More information provided below.) • You might need to use an AD-AS diagram for Part 1 c). • The suggested word count (i.e. ~500 words) is a recommendation, but not compulsory. Feel free to allocated words between the different parts of the assignment if you think doing so will improve the overall quality of your assignment. 6
Part 2: Explain how domestic private sector factors contributed to high 2022 inflation (~600 words) a) Discuss some of the domestic private sector factors (i.e., domestic factors excluding changes to fiscal or monetary policy) that have contributed to the change in Australian aggregate demand identified in Part 1. − E.g. changes to consumer confidence, business confidence, financial market sentiment etc. − You will need to substantiate your discussion with suitable references. For example, if you state that an increase in consumer confidence has increased marginal propensity to consume, then you need to substantiate this claim with data on consumer spending (e.g. by citing data on household saving rates).
b) Using the IS-LM and AD-AS models, provide a detailed explanation of how these domestic factors results in changes to Australian aggregate demand, and consequently resulted in the acceleration of the inflation rate observed in 2022.
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Tips: • Might be useful to review Tutorials 2 to 4 for this section. • Changes to consumer confidence may change marginal propensity to consume, changes to business confidence might be due to changes in expected future economic growth and changes to financial market sentiment might change demand for financial assets. • For Part 2 b), it will be useful to recall how we derived the aggregate demand curve from the IS-LM model. • Appropriate IS-LM and AD-AS diagrams will be useful in presenting your analysis. 7
Part 3: Analyse the impact of fiscal and monetary policies on 2022 Australian inflation (~400 words) a) Outline the key fiscal and monetary policies implemented in 2022.
b) With the IS-LM and AD-AS models, provide a detailed analysis whether monetary policy in 2022 moderated or contributed to inflation in the same year. Do the same for fiscal policy.
c) Your analysis should provide a detailed description of how exactly fiscal and monetary policy affected the economy.
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Tips: • You must provide references for the policies discussed, from primary sources (e.g. the RBA or the Australian government). • The Australian federal budget contains many line items. You should focus on 2 or 3 major policies that you think have the biggest impact on inflation. • The Australian financial year runs from July of one year to June of the next. For example, 2022-2023 or 2022-2023. The Australian government budget follows the same financial year schedule. o For example, for financial year 2021-2022, the Australian federal budget is handed down in May 2021, and relates to government spending and taxation for the period starting 1 July 2021 and ending 30 June 2022. Wikipedia provides a quick overview of this process (link). • The RBA announces its monetary policy decisions the first Tuesday of each month (with the exception of January). 8
[Instructions Continues On Next Page] Data Sources and Requirements Your primary data sources should be: a) National Agencies, such as the Australian Bureau of Statistics (ABS), the Reserve Bank of Australia (RBA), the Australian Department of Health and Aging. b) Multinational agencies, such as the World Bank, the United Nations, the World Health Organisation (WHO). Data from secondary sources can be used as a supplement only if it is not available from primary sources. Use of data from non-primary sources can lead to loss of marks when primary source data is available. • Given that 2022 Australian economic data is not available on World Bank’s WDI database, you will need to obtain the macroeconomic data for your analysis from the Australian Bureau of Statistics (ABS). You can easily access Australian macroeconomic data (including data for 2022) from the ABS Data Explorer. (https://explore.data.abs.gov.au/) • COVID cases and deaths data as well as vaccination data is available from the WHO. (https://covid19.who.int/data) • The IMF COVID-19 Policy Tracker (link) provides a good summary of COVID related policies. However, the IMF policy tracker was last updated in July 2021. • For COVID-related public health related policy changes occurring after July 2021, you may consider using secondary data sources such as news reports, but only from reliable news outlets. Some examples of reliable news outlets: o The Australian newspaper o Australian Broadcasting Corporation o The Guardian newspaper o The Conversation website o The Age newspaper o Sydney Morning Herald newspaper • However, fiscal and monetary policies must be referenced with primary sources o RBA website for monetary policy (link). o Australian government budget webpage for fiscal policies (link). 9 Submission • Your essay must be submitted as a Microsoft Word document through Turnitin on Blackboard to check for plagiarism. While most instances of plagiarism are unintentional (e.g., forgetting to close a quotation mark), the originality report will reveal any form of plagiarism (intentional or unintentional). • Your essay should have a similarity index value of 15% or less. From the originality report, the marker will check whether any part of your essay is potentially plagiarised from other sources. Therefore, you should carefully review the originality report before your final submission.