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Topic 3: Macroeconomics

4 dot points, in syllabus order. Each dot point has a focused answer, with exam-style questions and worked answers where available.

How do we measure the health of an economy?

Define and measure economic growth, unemployment and inflation and explain their causes and effects.

Economic growth, unemployment and inflation are the key macroeconomic objectives. Growth is measured by real GDP, unemployment by the labour force survey, and inflation by the Consumer Price Index.

8 min read →

What determines the total output and price level of an economy?

Explain aggregate demand and aggregate supply and how their interaction determines output and the price level.

Aggregate demand is total planned spending in an economy; aggregate supply is total planned output. Their interaction determines the equilibrium level of real GDP and the general price level.

8 min read →

How does government budgeting steer the economy?

Explain fiscal policy and how changes in government spending and taxation affect economic activity.

Fiscal policy is the use of the government budget - spending and taxation - to influence economic activity. Expansionary fiscal policy boosts aggregate demand, while contractionary policy reduces it.

7 min read →

How does the Reserve Bank influence the economy?

Explain monetary policy and how the Reserve Bank uses interest rates to influence economic activity.

Monetary policy is the Reserve Bank of Australia's use of the cash rate to influence interest rates, aggregate demand and inflation, with a target of 2 to 3 percent inflation over time.

7 min read →