Achievement Standard 3.5 Demonstrate understanding of macro-economic influences on the New Zealand economy

Macro –Economics Four macro-economic indicators – I____________ – G_________ – E___________________ – C______________ A____________ B___________ Government Polices – M______________________ – F______________________ – S_____________________ – T____________________________

Circular Flow Model Fill in the circular flow model labelling all the sectors and flows

Business Cycle Label the stages of the business cycle model below and the axis’s.

State the different characteristics of the stages in the business cycle Peak / upswing –  _______Eco Activity  _______unemployment  _______investment  Consumer and business confidence is _______  _________inflationary pressure Downturn/Recession  _______Eco Activity  _______unemployment  _______investment  Consumer and business confidence is _______ – ___________or __________occurring

Economic Growth Define the following words Economic growth _________________________________ ________________________________________________ Gross Domestic Product ____________________________ ________________________________________________ Nominal GDP ____________________________________ _______________________________________________ Real GDP________________________________________ Real GDP equation = ________________

Inflation Define the following words Inflation ________________________________ Cost Push Inflation ________________________ ________________________________________ Demand Pull Inflation ______________________ ________________________________________ Consumer Price Index ______________________ _________________________________________ Calculating the inflation Rate =________________________

AD/AS Draw the AD/AS model below Label the axisis and the equilibrium that exists in the market What is the AD equation AD = Name the three factors that cause a change in AS T______________________ C______________________ P______________________

Recessionary Gap Draw in a correctly placed full employment line to show a recessionary gap. Then label the recessionary gap Inflationary Gap Draw in a correctly placed full employment line to show a inflationary gap. Then label the inflationary gap

The Multiplier Effect What is the Marginal propensity to consume? _____________________________________________________________________ _____________________________________________________________________ ____________________________________________________________________ What does the multiplier effect show? _____________________________________________________________________ _____________________________________________________________________ _____________________________________________________________________ ____________________________________________________________________ If mpc =0.8 and government spending increases by 100million using the multiplier effect calculate the increase in output

Monetary Policy Loose Monetary Policy =_____________________ _________________________________________ Tight Monetary Policy =_____________________ _________________________________________ OCR =_________________________________ Policy Targets Agreement =___________________ _________________________________________

RBNZ increases OCR This is called ______________________Monetary Policy Banks will ____________________ Borrowing becomes _____________ expensive Consumers will __________________________ Foreign Investors will _______________________ _________________________________________ The exchange rate will ____________________ Overall effect on the Price Level Inflation __________________ Overall effect on growth Real GDP __________________ Overall effect on unemployment Unemployment ________________

RBNZ Decreases OCR This is called ______________________Monetary Policy Banks will ____________________ Borrowing becomes _____________ expensive Consumers will __________________________ Foreign Investors will _______________________ _________________________________________ The exchange rate will ____________________ Overall effect on the Price Level Inflation __________________ Overall effect on growth Real GDP __________________ Overall effect on unemployment Unemployment ________________

Fiscal Policy Expansionary Fiscal Policy =_______________ ____________________________________________ _____________________________________ Contractionary Policy =__________________ ____________________________________________ _____________________________________ The governments operating Balance is the difference between the governments _______________ and its ______________ Budget Deficit is when _______________________ is greater than ___________________ Budget Surplus is when _______________________ is greater than ___________________

Fiscal Policy Most of government income comes from three different sources of tax these are ____________________ ___________________ The government spends money in many different areas the main three include E_____________________ H______________ S_______________ W_____________

Expansionary Fiscal Policy Say how an expansionary fiscal policy affects the following Inflation _________ Growth ___________ Unemployment ______________ Show the effect of an expansionary Fiscal Policy on the AD/AS Model below

Contractionary Fiscal Policy Say how an Contractionary fiscal policy affects the following Inflation _________ Growth ___________ Unemployment ______________ Show the effect of an contractionary Fiscal Policy on the AD/AS Model below

Supply Side Policies Supply side policies are directed at increasing a firms __________________. They do this by lowering a firms __________ ____ ______________. Show the effect of an increase in worker training schemes on the AD/AS model below How does a supply side policy affect the following? Inflation _________ Growth ___________ Unemployment ______________

Trade Agreements Show the effect of a free trade agreement with China on the AD/AS model below How does a free trade policy affect the following? Inflation _________ Growth ___________ Unemployment ____________ 1. Explain how AD is affected _____________ _____________________________________ _____________________________________ _____________________________________ _____________________________________ 2. How is AS affected?___________________ _____________________________________ _____________________________________ _____________________________________ _____________________________________ _____________________________________

The Balance of Payments Name the three main accounts that make up the BOP 1.____________________ 2.____________________ 3.____________________ The Current Account is made up four sections Balance on goods =____________________________________ Balance on services =__________________________________ Balance on Income =__________________________________ ___________________________________________________ Balance on current transfers= ____________________________ Current Account Balance =

The Balance of Payments Name the three main accounts that make up the BOP 1.The current account 2.The capital account 3.The financial account The Current Account is made up four sections Balance on goods = Export receipts (goods) – import payments (goods) Balance on services = Export receipts (services) – import payments (services) Balance on Income = Income from investment aboard (inflow) less income from foreign investment Balance on current transfers= Inflows – Outflows Current Account Balance = Bal on goods + Bal on services + Bal on income + Bal on current transfers

Balance of Payments – Current Account $ Million Outflow of current transfers256 Income from investment abroad519 Export of goods6936 Import of services2542 Direct Investment2398 Import of goods7650 Income from foreign investment2229 Export of services2024 Inflow of current transfers292 Capital account inflow460 Using the data above calculate the following 1.Balance of goods=____________________________ 2.Balance of services =_________________________ 3.Current account balance =______________________

Balance of Payments – Current Account $ Million Outflow of current transfers256 Income from investment abroad519 Export of goods6936 Import of services2542 Direct Investment2398 Import of goods7650 Income from foreign investment2229 Export of services2024 Inflow of current transfers292 Capital account inflow460 Using the data above calculate the following 1.Balance of goods = = -714mil 2.Balance of services = = -518 mil 3.Current account balance = = mil

Exchange Rates Define the following Appreciation of NZ dollar ____________________ _________________________________________ Depreciation of the NZ dollar _________________ _________________________________________ An appreciation makes our exports ___________ And our imports ____________ so import payments will ___________ and export receipts will ____________ A depreciation makes our exports ___________ and our imports ______________so import payments will ___________ and export receipts will ____________

Foreign Exchange Model DNZ SNZ 1.Show the effect of an increase in the number of visitor travelling to NZ, on the foreign Exchange model. 2.What happens to the NZ dollar? ____________________________ 3. Explain the effect on export receipts ________________________________________ ________________________________________ ________________________________________ 4. Who loses and who gains from the change in the foreign exchange model shown above? (Consumers, importers, exporters and government) ____________________________________________________________________________ ____________________________________________________________________________ ____________________________________________________________________________

Trade Weighted Index YearTWI ( NZ as at 31 July) Looking at the table provided. Explain whether there has been an appreciation or depreciation of the NZ dollar? ______________________________ ______________________________ ______________________________ Explain how the change in the value of the NZ dollar can be expected to influence our exports and imports _________________________________________________________________________ _________________________________________________________________________ Explain the likely impact of the changes described above on the current account balance _________________________________________________________________________ _________________________________________________________________________

Terms of Trade TOT = _________________ A favourable movement means the TOT has ______________. This means the purchasing power of our exports has ________________ A unfavourable movement means that the TOT has _____________. This means the purchasing power of our exports has ________________ 1. Fill in the table below by calculating the TOT YearExport price IndexImport price IndexTerms of Trade Explain whether the change in the terms of trade is favourable or unfavourable ___________________________________________________________________________ ___________________________________________________________________________

Terms of Trade YearExport price IndexImport price IndexTerms of Trade Explain whether the change in the terms of trade is favourable or unfavourable The change in the terms of trade is unfavourable, as export prices have fallen relative to import prices- it will now require a greater quantity of exports to be sold to pay for the same quantity of imports

Applications 1.The Economy is currently working very well operating at full employment. Draw this on the ADAS model to represent this position. 2. The government has been operating large budget surpluses over the past few years. Explain what a budget surplus is. ________________________________________________________ ________________________________________________________ 3. Due to the large budget surpluses, there has been pressure on the government to reduce income taxes. Show the effect of this policy change and explain ________________________________________________________ ________________________________________________________

4. Explain why the RBNZ would be concerned about the impact of the tax cuts on the economy. Refer to the changes on your graph _____________________________________________________________________ _____________________________________________________________________ _____________________________________________________________________ 5. What is the likely action the RBNZ will take in terms of its OCR _____________________________________________________________________ _____________________________________________________________________ 6. Explain the impact this will have on both consumers and firms _____________________________________________________________________ _____________________________________________________________________ _____________________________________________________________________ ____________________________________________________________________ 7. What is the likely impact on exporters and importers? _____________________________________________________________________ _____________________________________________________________________ 8. Explain the likely impact of the changes described above on the current account balance _____________________________________________________________________ _____________________________________________________________________ _____________________________________________________________________