Download Sample Exam Questions - word 2003 File

SAMPLE QUESTIONS TAKEN FROM 2006 CETA PRACTICE EXAM
QUESTION ONE: ECONOMIC GROWTH
GRAPH 1: New Zealand’s Annual Change Gross Domestic Product
(a)
GRAPH 1 shows New Zealand’s Gross Domestic Product. Define Gross Domestic
Product.
(b)
Describe ONE limitation of using nominal GDP as a measure of economic growth.
(c)
Explain why real GDP per capita may NOT be the best measure of economic growth.
QUESTION TWO: INFLATION
(a)
Describe the difference between disinflation and deflation.
GRAPH 2: Quarterly Inflation March 2005 – March 2006
Percentage Change
1.2
1.0
0.8
0.6
0.4
0.2
0.0
-0.2
Mar
Jun
Sep
Dec
2005
Quarter
(b)
Mar
2006
Use GRAPH 2 to identify a quarter in which inflation, deflation, disinflation occurs
compared to the previous period and briefly describe why.
Quarter
Inflation
Deflation
Disinflation
Description
(c)
The price of petrol rose by 20% from May 2005 to Feb 2006 while the inflation rate for
the same period was 1.5 %. Explain the difference in these figures.
QUESTION THREE: INFLATION
(a)
Between May 2005 and February 2006, the price of petrol rose by approximately 20%.
On GRAPH 3 show how the rise in the price of petrol will cause cost push inflation.
Label the graph appropriately.
GRAPH 3: Aggregate Demand and Supply
Price
Level
AS
PL1
AD1
Y1
(b)
Real GDP (Y)
Use GRAPH 4 to show how a decrease in income tax will impact on the rate of
inflation.
GRAPH 4: Aggregate Demand and Supply
Price
Level
AS
PL1
AD1
Y1
(c)
Explain your answer to (b).
Real GDP (Y)
(d)
The quantity theory of money equation MV = PQ can be used to show the relationship
between the money supply and the rate of inflation.
(i)
State what is meant by the two variables V and Q.
V = _____________________________________________________
Q= _____________________________________________________
(ii)
Use the equation to describe how changes in the money supply might affect
inflation.
(iii)
Explain one limitation of the quantity theory of money which means the
relationship you identified in (ii) may not hold.
QUESTION FOUR: TRADE
(a)
Explain why New Zealand has a comparative advantage in the production of primary
goods such as dairy products.
GRAPH 5: Dairy Market in New Zealand with Trade
PNZ$
SNZ
PW
World price
DNZ
0
(b)
(c)
(d)
Q
Assume trade occurs. On GRAPH 5 identify
(i)
domestic production as Qp and domestic consumption as Qc.
(ii)
clearly label the quantity of exports.
A depreciation of the New Zealand dollar will cause the world price received by
exporters to increase. On GRAPH 5
(i)
show an increase in the world price.
(ii)
Label the new quantity of exports
Use GRAPH 5 to explain who benefits as a result of the depreciation.
An expected fall in the New Zealand interest rates was one of the major reasons for the
depreciation in the New Zealand dollar at the beginning of 2006.
(e)
(f)
State one other possible cause of a depreciation in the exchange rate besides a fall in
New Zealand interest rates.
On GRAPH 6 show how a fall in interest rates will lead to the New Zealand dollar
depreciating. Label any changes appropriately.
GRAPH 6: Foreign Exchange Market for the New Zealand Dollar
P$NZ
S$NZ
Pe
D$NZ
Qe
Q$NZ
(g)
Explain your answer to (f).
(h)
Draw a conclusion on whether the supply and demand model for foreign
exchange is a useful tool for analysing changes in the foreign exchange market.
QUESTION FIVE: GROWTH
Diagram 1: A Simple Circular Flow
Payment for resources
Economic Resources
Firms
Households
Consumer Goods and services
Consumer Spending
(a)
From Diagram 1 identify TWO ways in which economic growth would benefit
households.
1.
2.
(b)
Evaluate the limitations of the circular flow model to draw a conclusion on
whether the circular flow model is a useful tool to illustrate economic growth.
QUESTION SIX: INFLATION
(a)
(i) Name the Act that gives responsibility to the Reserve Bank for controlling inflation.
(ii) Name the agreement between the Minister of Finance and the Reserve Bank that
specifies the inflation target for the Reserve Bank.
(iii) What is the current inflation target specified in that agreement?
During the later part of 2005 inflationary pressures resulted in the inflation rate exceeding the
inflation target. The Reserve Bank responded by raising the OCR.
(b)
Explain how raising the OCR will reduce inflation.
(c)
Explain how this action by the Reserve Bank will impact on economic growth and
inequality.
Impact on growth
Explanation
(f)
Explain how the increase in the OCR will impact on New Zealand’s balance of trade.
Impact on balance of trade
Explanation
QUESTION SEVEN: GROWTH
During the 2005 election the Government was criticised for having a large operating surplus.
(a)
What is an operating surplus?
(b)
Name the Act that requires the Government to maintain a positive operating balance
on average.
The 2005 Budget included measures to encourage growth such as tax cuts to encourage
investment and more money to be spent on increasing the skill and talent of New Zealand’s
workforce.
(c)
(i) Actions by the Government involving taxation and spending are which type of
policy?
(ii) Are the policies referred to in the resource material best described as
contractionary or expansionary?
(d)
Explain how tax cuts to encourage investment will increase growth.
(e)
Explain how a more highly skilled and talented workforce will increase growth.
QUESTION EIGHT: TRADE
(a)
State ONE specific objective of Government trade policy.
(b)
State and explain a trade policy the Government could use to achieve this trade
objective OTHER than policies aimed at free trade.
Policy
Explanation
Progress towards a New Zealand-China Free Trade Agreement resumed in 2006 when
negotiators met in Beijing during the week of 6 March for the sixth round of negotiations. Both
countries have expressed the hope that New Zealand will be the first developed country to
conclude a Free Trade Agreement with China.
Source: Extract from NZ Ministry for Foreign Affairs and Trade
(c)
What is a free trade agreement?
(d)
State and explain the impact of the Free Trade Agreement on inflation.
Impact on inflation
Explanation
QUESTION NINE: INFLATION
Assume a student bought the following goods over a three year period at the school canteen.
Item purchased
Quantity
per Year
Price $
2004
Price $
2005
Price $
2006
Muffins
40
0.80
0.85
1.00
Cheese Rolls
25
1.00
1.10
1.20
Chicken Burgers
15
1.80
2.10
2.60
(a)
Use the information in the table above to calculate price index numbers and the rate of
inflation in 2005 and 2006. Assume 2004 is the base year.
Year
2004
Total Spending
Price Index
Inflation Rate %
1000
2005
2006
(b)
State and explain one limitation of the Consumer Price Index as a measure of inflation.
Limitation
Explanation
QUESTION TEN: TRADE
TABLE 1: Balance of Payments Figures
$M
Export of Goods
31 000
Investment Income Balance
- 10 000
Balance on Services
600
Import of Goods
35 000
Financial Account Balance
12 000
Capital Account Balance
100
Balance on Current Transfers
500
(a)
Use TABLE 1 to calculate the following figures:
i
Balance of goods and services
$______________ m
ii
Balance on current account
$______________ m
GRAPH 1: New Zealand’s Balance on Current Account
Source:
www.treasury
.govt.nz
(b)
Use GRAPH 1 to describe the trend in New Zealand’s balance on goods and services
since June 2001.
(c)
Use the information in GRAPH 1 to describe the main reason for the balance on
current account being negative in June 2003.
GRAPH 2: New Zealand’s Trade Weighted Index
Trade Weighted Index
74
72
70
68
66
64
62
60
58
Jul05
Aug05
Sep05
Oct05
Nov05
Dec05
Jan06
Feb06
Mar06
Apr06
M onth
Source: www.treasury.govt.nz
(d)
What is the trade weighted index?
(e)
Explain what effect the trend from December 2005 to April 2006 in GRAPH 2 is likely to
have on the balance on goods and services.
(f)
Use an external factor to explain why your answer to (e) may not be necessarily true.
QUESTION ELEVEN: TRADE
1999 – 2004
2003 – 2005
2003 – 2005
Number of Dairy cattle
up 19.3%
Dairy production up 16.1%
Dairy exports up 10.4%
Wool production down 6.3%
Wool exports down 18.8%
Number of sheep
down 14%
Based on $ value
Based on $ value
Source: Statistics NZ and MAF
(a)
Use the resource material above to describe the relationship between trade and the
contraction or expansion of industries in New Zealand.
(b)
Describe why dairy production rose 16.1% yet dairy exports rose only 10.4%
(c)
State and explain one specific flow on effect of wool exports falling 18.8% on the New
Zealand economy OTHER than the information given in the resource material.
Flow On Effect
Explanation
QUESTION TWELVE: GROWTH
(a)
Describe TWO positive effects of growth.
1.
2.
(b)
Describe TWO negative effects of growth.
1.
2.
Last year the NZ Rugby Union won the rights to host the 2011 World Cup.
(c)
Evaluate the uneven impacts of hosting the Rugby World Cup on the New Zealand
economy by
(i)
Stating ONE example of who benefits, and explain why.
Example
Explanation
(ii)
Stating ONE example of who does NOT benefit, and explain why.
Example
Explanation:
(iii)
Draw a conclusion on whether New Zealand’s economy will benefit overall from
hosting the Rugby World Cup in 2011 despite its uneven impacts.