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Contemporary Macroeconomic Issues ECON3011

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Contemporary Macroeconomic Issues ECON3011

Choose one of the topics below on contemporary macroeconomic issues, research it
widely in journals, books, professional magazines, blogs etc and write a reasoned
essay on the issue and its implications for macroeconomic outcomes and policy.
Some suggested sub-questions to address are given under each topic; you may
address some or all of these sub-questions.
Format: Maximum 1500 words. You may use any number of figures and diagrams
and tables. Use 12 point font, 1.5 line spaces and A4 page size.
Citation: Remember to cite any writing that is not your own, and you must use
quotation marks for text written by another author. The essays will be submitted
online through TURNITIN that can detect copied material from anywhere at any time
globally (if you can find it, TURNITIN has found it too). Put everything in your own
words, or cite it explicitly.
Late submissions: if not supported by the University with a Special Consideration
application, they will incur a penalty.

1. Why are interest rates generally so low at present?
Focus on nominal versus real interest rates, on saving-investment equilibrium models for the
longer run – on demographic trends, on technology trends, on globalization. Consider
negative interest rates and their implications. What have been the effects of COVID-19 on
interest rates? When, why and how far might neutral interest rates rise?
2. Why have real wages been growing so slowly in recent years?
Is the Phillips curve still relevant? Focus on the changing nature of jobs; technology,
globalization; effect on underemployment. What has happened to the modern Phillips curve?
If it does not work empirically, does this mean the New Keynesian macro model is dead?
How has the COVID-19 shock and the policy responses affected wage growth? Will there be
a wages breakout as inflation expectations rise?
3. Should central banks always conduct both conventional and unconventional monetary

Explain how each works. Focus on the effectiveness and limitations of forward guidance and
longer-term asset purchases by major central banks after 2008. What is the RBA’s current
approach to unconventional policy in 2020-22? What are the inflation and economic activity
benefits and risks of these policies? Should we be concerned about the large expansion of
central banks’ balance sheets?

Contemporary Macroeconomic Issues ECON3011

4. Evaluate the performance of inflation targeting by central banks, such as the RBA. How
can it be improved?
Compare with some of the possible alternatives like nominal income targeting. Should central
banks be concerned about asset price inflation? Is inflation targeting becoming more
challenging in 2022 as countries emerge from very low inflation and almost zero short
interest rates? Should central banks be targeting average inflation over a period? How
should or could central banks address issues like economic growth, income and wealth
inequality, climate change?
5. What is the most likely cause of the next major financial crisis? Will it be different to
previous crises?
Refer to the most recent financial crisis and its aftermath, including policy responses.
Consider financial imbalances in, for example, housing markets, sovereign debt markets. Is
financial regulation in Australia effective enough to avoid a financial crisis here?
6. Many central banks are considering introducing their own digital currencies (CBDCs)
or have begun experimenting with them. Should they?
How will these currencies work? Compare them to existing private crypto- and digitalcurrencies (like BITCOIN). What are the monetary, financial, macroeconomic and policy
implications of digital currencies? Should the RBA introduce a digital currency? Should/can
there be both private and public digital currencies in circulation?
7. What are the most promising technological innovations in 2022? How will they
affect/disrupt the economies of the world?
Focus on artificial intelligence, machine learning, ITC, robotics. What are the likely
macroeconomic implications of these innovations? Relate your answer to endogenous
growth modelling. How will the extended lockdown and distancing caused by governments’
responses to COVID-19 affect future productivity?
8. Discuss the trends in inequality in rich countries? What are the macroeconomic policy

Compare trends in income and wealth inequality. Explain how these are measured. What are
the main causes of the trends? Why should we care? What are governments doing to combat
these trends? Are they doing enough? How does Australia compare with other rich
9. Fiscal authorities have run large deficits and expanded government debt to maintain
aggregate demand in the face of COVID-19 from 2020-22. Is this sustainable in the
longer run?
Explain in the context of the temporal and intertemporal government budget constraint.
Explain why the difference between the (safe) real interest rate (r) and the long run growth
rate of GDP (g) matters. Does the power of government to create `money’ imply that it can
spend whatever it likes? What causes the limits to this freedom?

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