Introductory macroeconomics

Introductory macroeconomics
You are required to answer ALL questions below.

Question 1 (625 words)

Discuss the main problems associated with using GDP as a measurement of economic well-being.

Question 2 (625 words)

Recentl?, the FairWork Ombudsman changed the penalty rates and allowances in the Hospitality, Restaurant, Fast Food, Retail and Pharmacy Awards (https://www.fairwork.gov.au/pay/penalty-rates-and-allowances). Whilst diverse views on this topical issue have been expressed in the media, a major argument supporting this initiative suggests that it encourages employers to hire more workers.

Use the general equilibrium model to illustrate and explain the effects of this policy change on the labour, product and capital markets. For ease of exposition, assume that the Australian economy is at full employment and faces a downward-sloping labour demand curve, a vertical labour supply curve and a perfectly inelastic saving curve.

Question 3 (625 words)

In its 2017-18 Budget the Australian government identified “Ensuring the Government lives within its means” as one of its primary policy objectives (https://budget.gov.au/2017-18/content/glossies/overview/html/). To achieve that end the Treasurer Scott Morrison re-labelled items in government debt into either “good debt” or “bad debt”. In a nutshell, “good debt” includes government borrowing used to finance physical infrastructure whereas “bad debt” refers to government borrowing used to fund welfare payments.

With this backdrop, use the income-expenditure analysis to compare and contrast the effects of an increase in “good debt” (government spending) and “bad debt” (transfer payments) on the short-run equilibrium output in Australia. In your discussion, consider the effects of crowding out and marginal propensity to consume on the equilibrium level of output

Question 4 (625 words)

A booming housing market and high household debt have caused graved concerns for the Governor of the Reserve Bank of Australia (RBA), Philip Lowe. In a recent speech, the Governor suggested that “…higher housing prices are a two-edged sword.They deliver capital gains for the current owners, but increase the cost of future housing services, including for our children” (https://www.rba.gov.au/speeches/2017/sp-gov-2017-05-04.html).

If you are the Governor of the RBA, how can you cool down the housing market using the open-market operation? In relation to this, how would a collapse of the housing market affect the Australian economy. Illustrate and discuss the transmission mechanism of such change in the aggregate demand-inflation (ADI) analysis. For completeness, ensure that your discuss the short-, medium- and long-run equilibrium adjustments in the economy under the ADI analysis.