marceconomic

Course: Macroeconomic

I)

Actual GDP= GDP + 0.05 * 701401

= 460827 + 35070.05

= 495897.1

II)

C= A + MD

260656=A+0.7*460827*0.05

260656-16128.95=A

A=244527.1

A is Autonomous Consumption

Part i)

Fiscal policy involves the ability of government to borrow money. The constant role of government in borrowing money raises the interest rates. On contrary, the monetary policy does not involve the borrowing of funds that prevents the building of national debt. The expansive nature of monetary policy allows the banks to lower the interest rate that immediately affects the investment potential of the businessmen and buying potential of the customers. Real estate business is the best example to study the role of monetary policy in stabilizing economy of the country. With lower interest rates the mortgage value of the houses get lowered which allows house owners to invest more in real estate. The returns are also made in time by the buyers which attract the attention of real estate investors in investing money in real estate sector. Along with real estate sectors, other business and service sectors also get to grow during adaptation of monetary policy by the government. Due to lower interest rates by banks the businessmen tend to expand their business by loaning money. The monetary policy also has the direct impact over the rates of goods and services where they lower their prices. This allows the consumers to spend more money thus elevating the buying potential of the market (Metcalf, 2017).

III)

Tax Multiplier = -MPC/1-MPC

= -0.7/ (1-0.7)

= -0.7/0.3

=-2.3

IV)

Autonomous Net Export

=Nx(m)*GDP

=0.04*460827

=18433.1

Part j)

The extension of US China trade war is least likely to affect the economy of Australia. The assessment can be made by performing analysis of trade that is being done by Australia with both the economies. Australia’s nearly 29% of export is being done to China and it makes it the biggest trading partner of Australia. On the other hand the import of Australia to United States is comparatively lower and it is around 6.9% and it makes it the third largest trade partner to Australia. In March 2018, President Donald Trump announced a tariff of 15% on all Aluminium import to United States and the tariff of nearly 25% on steel imports ("Implications on Australia from a rise in protectionist activity by the USA and China", 2019). The announcement did not include the details of the propaganda where the list of exempted countries was not provided that might be a threat for the Australian economy. Another significant note from the announcement was that President didn’t mention the time period up to which the respective import tariffs would be imposed. The announcement is not a subject of great concern to Australian economy as only 1% of the total GDP of Australia is recorded from the exports with United State

Reference

Implications on Australia from a rise in protectionist activity by the USA and China. (2019). Retrieved from https://www.rba.gov.au/information/foi/disclosure-log/pdf/181904.pdf

Metcalf, T. (2017). What Are Benefits of Monetary Policy Over Fiscal Policy?. Retrieved from https://bizfluent.com/13638303/what-are-benefits-of-monetary-policy-over-fiscal- policy