Download Stage 2 Semester 1 Examination Marking Key 2011 Penrhos College

Question/Answer Booklet
ECONOMICS 3B SEMESTER ONE EXAMINATION
Student Name: ____________________________________________
Time allowed for this paper
Reading time before commencing work:
ten minutes
Working time for paper:
two and a half hours
Materials required/recommended for this paper
To be provided by the supervisor
This Question/Answer Booklet
Multiple-choice Answer Sheet
To be provided by the candidate
Standard items:
pens, pencils, eraser, correction fluid, ruler, highlighters
Special items:
non-programmable calculators satisfying the conditions set by the Curriculum
Council for this course.
Important note to candidates
No other items may be taken into the examination room. It is your responsibility to ensure that
you do not have any unauthorised notes or other items of a non-personal nature in the
examination room. If you have any unauthorised material with you, hand it to the supervisor
before reading any further.
1
Structure of this paper
Section
Number of
questions
available
Number of
questions to
be answered
Suggested
working time
30
30
3
4
Marks
available
Percentage
of exam
30-35
30
28
3
65-75
36
34
2
45
40
38
Total
100
(minutes)
Section One:
Multiple-choice
Section Two:
Data
interpretation/Short
response
Section Three:
Extended response
Instructions to candidates
1.
Answer the questions according to the following instructions.
Section One: Answer all questions on the separate Multiple-choice Answer Sheet
provided. For each question shade the box to indicate your answer. Use
only a blue or black pen to shade the boxes. If you make a mistake, place a
cross through that square, do not erase or use correction fluid, and shade
your new answer. Marks will not be deducted for incorrect answers. No
marks will be given if more than one answer is completed for any question.
Sections Two and Three: Write answers in this Question/Answer Booklet.
2.
You must be careful to confine your responses to the specific questions asked and to
follow any instructions that are specific to a particular question.
3.
Spare pages are included at the end of this booklet. They can be used for planning your
responses and/or as additional space if required to continue an answer.


Planning: If you use the spare pages for planning, indicate this clearly at the top of the
page.
Continuing an answer: If you need to use the space to continue an answer, indicate in
the original answer space where the answer is continued, i.e. give the page number.
Fill in the number of the question(s) that you are continuing to answer at the top of
the page.
2
SECTION ONE: MULTIPLE-CHOICE
28% (30 Marks)
This section has 24 questions. Answer all questions on the separate Multiple-choice Answer
Sheet provided. For each question shade the box to indicate your answer. Use only a blue or
black pen to shade the boxes. If you make a mistake, place a cross through that square, do not
erase or use correction fluid, and shade your new answer. Marks will not be deducted for
incorrect answers. No marks will be given if more than one answer is completed for any
question.
Suggested working time for this section is 30 - 35 minutes.
1.
Macroeconomic equilibrium in Australia occurs when
a)
b)
c)
d)
2.
total spending equals total output.
total income equals total output.
supply equals demand
savings equal investment.
This question relates to the graph below.
The marginal propensity to consume is
Consumer expenditure
C
C1
Real disposable income
a)
b)
c)
d)
the slope of the consumption function
the value C1
the reciprocal of the marginal propensity to save.
the reciprocal of the spending multiplier.
3
3.
Macroeconomic equilibrium in Australia occurs when
a)
b)
c)
d)
4.
Which of the following would be most likely to cause a boom in the business cycle?
e)
f)
g)
h)
5.
A rise in the terms of trade
The rise in the level of unemployment
Rising inflation
A rise in replacement investment
An increase in aggregate demand is likely to result in
i)
j)
k)
l)
6.
total spending equals total output.
total income equals total output.
supply equals demand
savings equal investment.
higher prices and slower growth in real GDP.
higher real GDP and higher interest rates.
lower interest rates and higher inflation.
higher inflation and job creation.
answer
This question relates to the graph below.
*insert graph
4
*check
The graph has a marginal propensity to consume of _______________ and, therefore,
a multiplier of _________________. The missing figures are, respectively,
a)
b)
c)
d)
7.
In a trough, a balanced budget would:
a)
b)
c)
d)
8.
a reduction in marginal income tax rates
an increase in tax collections during a boom
an increase in government tariff revenue
a decrease in government tax revenue
A significant problem with monetary policy is that
a)
b)
c)
d)
10.
increase the severity of the slow-down in economic activity.
have a long implementation lag.
expand the level of economic activity
interfere with the political cycle.
Which one of the following is an example of discretionary fiscal policy?
a)
b)
c)
d)
9.
0.6, 2.5
0.6, 1.67
0.8, 5
0.8, 2.5
the Reserve Bank of Australia can be influenced by the Treasurer.
interest rates can only be changed by 0.25%.
consumers do not react to interest rate increases during a boom.
it may not be effective during a recession.
Contractionary monetary policy is most likely to be used when
a)
b)
c)
d)
inflation is high, unemployment is low and consumer spending is high.
inflation is low, unemployment is high and consumer spending is low.
inflation is high, unemployment is high and consumer spending is low.
the current account deficit is high, unemployment is low and consumer spending is
high.
11.
An aim of microeconomic reform is to
a) lower firms’ production costs.
b) increase aggregate demand.
c) increase wages growth.
d) eliminate excess capacity.
12.
Which one of the following statements about productivity is correct?
5
a)
b)
c)
d)
13.
The federal government’s (underlying cash) deficit for 2010–11 was planned to be $40.1
billion. This compared to an actual budget outcome of –$57.8 billion for 2009–10. The
change in the forecasted Budget outcome was, in part, due to:
a)
b)
c)
d)
14.
an increase in income tax rates.
the introduction of an emissions trading scheme.
Drought relief and other natural disasters.
a decrease in the unemployment rate.
A decrease in the number of home loan approvals is:
a)
b)
c)
d)
15.
Productivity growth always results from capital investment.
Labour productivity is the best measure of productivity growth.
Productivity growth is measured by increases in the output of the economy.
Productivity growth results from capital deepening.
*check
answer
A leading indicator.
A lagging indicator.
A coincidental indicator.
An adverse indicator.
In June 2009, the unemployment rate was 5.8% and fell to 5.1% by June 2010. This
decrease in the unemployment rate could be due to:
a) the increase in the cash rate from 3.00% to 4.50% over the same period.
b) the increase in the value of the Australian dollar from 81 US cents to 90 US cents
over the same period.
c) the increase in the inflation rate from 1.5% to 2.1% over the same period.
d) the increase in the rate of economic growth from 1.0% to 2.8% over the same
period. *bit easy
16.
The Reserve Bank of Australia is likely to increase interest rates if:
a)
b)
c)
d)
17.
If the consumer price index (CPI) increases from 120 to 126 the inflation rate was
a)
b)
c)
d)
18.
there is an increase in inflation expectations.
there is a decrease in the value of the Australian dollar.
the unemployment rate decreases.
The Australian Government reduces the size of the Budget deficit.
5%
6%
8%
10%
If the economy is operating at the natural rate of unemployment then there would be no
6
a)
b)
c)
d)
19.
In the AS/AD Model an appreciation of AUD would result in a shift in
a)
b)
c)
d)
20.
the level of consumption
the level of taxation revenue
the level of imports
none of the above
Calculating the rate of economic growth from year 2 to year 3.
Year
Nominal GDP
CPI
1
200 bn
115
2
208 bn
116
3
210 bn
118
a)
b)
c)
d)
23.
consumption of $1, would result in savings decreasing by $1.
investment of $1, would result in income increasing by $3.
investment of $4, would result in income increasing by $1.
investment of $1, would result in consumption increasing by $3.
An increase in interest rates in Australia would have very little effect on:
a)
b)
c)
d)
22.
aggregate demand to the right
aggregate demand to the left.
aggregate supply to the right.
aggregate supply to the left.
Assuming a closed economy with no government, if the multiplier is 4, then an
autonomous increase in
a)
b)
c)
d)
21.
unemployment
cyclical unemployment
structural unemployment
frictional unemployment
the level of consumption
the level of taxation revenue
the level of imports
none of the above
If the level of saving exceeds the level of investment, it is likely that
7
a)
b)
c)
d)
24.
investment will increase because there is more available funds
the level of income in the circular flow will fall in the next time period
inventories (unsold stock) will decrease
the level of saving will rise during the next time period
Achieving low inflation is compatible with achieving:
a)
b)
c)
d)
25.
a lower CAD
sustainable economic growth
low unemployment
an equal distribution of income
Automatic stabilisers
a) keep tax revenue equal to government spending over the business cycle the
crowding in effect
b) cause an increase in tax revenue during a boom
c) can be actively used by the government during a boom together with monetary
policy to reduce inflation
d) increase tax revenue relative to government spending during an economic
downturn
Data
RBA
Chart Pack RBA – Australian Cash Rate graph
a) Explain what is meant by the cash rate.
The interest rate charged on loans between banks in the overnight money market
(2)
b) Account for the trend in the cash rate observed in the graph over the last 5 years
(3)
CR reached Peak of 7.25% in 2008 as mining boom pushed ec growth to full
employment capacity constraints then falling to 3% in 2009 as GFC slowed ec growth
and rising U threatened. and rising to 4.75% currently as economy expanding
c) With a use an appropriate model, describe the expected impact of monetary policy
adopted by the RBA in late 2008 – 2009.
Expansionary stance (1)
Why – GFC decreased confidence, I, C and X dropped (global). Fall in CR to stimulate C and I
(2)
8
Fall in CR to stimulate C and I, repayment on loans lower to encourages C and I and
discourages S which leads to an expansionary effect on AE, Output and income … economic
growth (2)
Graph – deflationary gap, AD/AS model with AD. Keynesian model
(2)
FP
a) With respect to the Federal Budget, what is meant by ‘the government needs to issue an extra
$50 billion of bonds to meet its needs’?
(2 marks)
b) Under what circumstances would a government plan a budget of this type?
(4 marks)
c) Comment on the possible consequences of financing a budget in this way.
(6 marks)
AD/AS
By adding to energy costs the effect of higher oil prices is to reduce the amount of money for
spending on other things thereby undermining aggregate demand in the wider economy.
d) What affect would higher oil prices have on the AD/AS graph
(1)
e) Outline two other factors affecting the AS curve.
(2)
f) What would be the likely effect of higher oil prices on the business cycle?
(1)
g) Using the AD/AS model, explain the impact of higher oil prices on the Australian
economy. (8)
9
Higher oil prices raises costs of prodn, pushing up price level and causing AD to contract.
Higher prices negatively impacts on company profits, dividends, consumption, investment.
Spending income Output and employment decline 5-6
Model 2
Explain model 1-2
Essays
Components of AD and business cycle and ec objectives
(a )Examine how strong economic growth among Australia's major trading partners, e.g.
China and Japan, can affect the components of aggregate expenditure and the
business cycle in Australia. (12 marks)
(b) Explain how the consequent change in Australia’s economic growth would affect each of
the Australian Government's economic policy objectives. (8 marks)
K
Ec objectives
Business cycle
1. This question refers to the table below.
2007
2008
2009
2010
2011 f
Inflation (%)
3.0
3.7
2.1
3.0
2.7
Economic growth (%)
5.0
2.1
1.2
3.0
2.7
CAD (% of GDP)
-6.2
-4.5
-4.4
-2.4
-3.6%
Unemployment (%)
4.3
4.2
5.8
5.2
5.0
Source : Australian Bureau of Statistics
Jobs outlook tests economy
The RBA’s assistant governor, Dr Philip Lowe told a forum in Sydney that Australia’s
commodity boom was leading to “very strong” employment growth in the mining sector.
Surging investment in the resources sector is increasing demand for engineers, project
managers, equipment hirers, lawyers and accountants. Higher export prices for
Australia’s iron ore and coal have substantially boosted national income which will
eventually increase household demand.
The problem is that with a jobless rate of 5%,10“there is little overall spare capacity”.
“a jobless rate of 5% may be the envy of the world, but it also means the economy is
operating close to … (the point) where labour shortages start feeding into higher wages
Editorial, Opinion ‘Jobs outlook tests economy’ Financial Review Friday 11 March p 62
a) What is meant by ‘the economy was reaching the limits of its capacity’?
mark)
(1
______________________________________________________________________
____________
______________________________________________________________________
____________
b) Construct the AD/AS model to demonstrate the impact of increased AD in the scenario
suggested above.
(3
marks)
c) Suggest policy options available to address this problem.
marks)
(8
2. The following questions refer to the two graphs below showing Australia’s economic
growth and savings patterns over the last decade. [ABS and Plain English Economics
March 2011]
11
a) Describe the trend in economic growth over the last decade.
(2 mark)
Fluctuating around 3-4% with a decline in 2000-2001, a peak in 2007-8 and a decline in 2009
b) State the relationship between economic growth and saving observed in the two graphs. (1
mark)
Negative, Savings ration low when ec growth around 3-4% but up to 10% when ec growth dropped in
2008-9
c) Account for this relationship.
(1 mark)
Consumer confidence was destroyed by GFC. Cautionary saving so discretionary C spending has
decreases substantially
d) Explain the impact that the change in the pattern of saving is having on the level of
economic activity.
(8 marks)
Decline in MPC and increase in MPS has driven AE down. Contractionary K effect. AE model. MPS
increasing reduced the size of k.
12