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2011: Semester 1 Exam: Stage 3 Economics MOUNT LAWLEY SENIOR HIGH SCHOOL SEMESTER 1 EXAMINATION - 2011 ECONOMICS - STAGE 3 NAME: ________________________________________________________________ ________________________________________________ Time allowed for this paper Reading time before commencing work: Working time for paper: ten minutes three 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. Mount Lawley Senior High School 2 2011: Semester 1 Exam: Stage 3 Economics Structure of this paper Number of questions available Number of questions to be answered Suggested working time (minutes) Marks available Percentage of exam Section One: Multiple-choice 24 24 35 24 24 Section Two: Data interpretation/Short response 3 3 65 36 36 Section Three: Extended response 4 2 80 40 40 Total 100 Section Instructions to candidates 1. The rules for the conduct of Western Australian external examinations are detailed in the Year 12 Information Handbook 2011. Sitting this examination implies that you agree to abide by these rules. 2. 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. 3. 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. 4. 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. Mount Lawley Senior High School 3 2011: Semester 1 Exam: Stage 3 Section One: Multiple-choice Economics 24% (24 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 35 minutes. 1. The largest category of global trade is: (a) (b) (c) (d) 2. Which of the following is NOT a likely consequence of the increasing global financial flows? (a) (b) (c) (d) 3. agriculture. manufacturing. oil. services. Increased access to finance in developing countries. Increased volatility in global financial markets. Increased opportunities for investors to make speculative profit. Increased access to foreign direct investment in East Asia. Which of the following is NOT an indicator of international competitiveness? (a) (b) (c) (d) Exchange rates. Relative inflation rates. Labour productivity. Interest rates. 4. Use the following figure to answer questions 4 and 5. Which of the following statements is correct? (a) China has absolute advantage in both goods and a comparative advantage in Food production. Australia has absolute advantage in both goods and a comparative advantage in Clothing production. China has absolute advantage in Food and a comparative advantage in Food production. Australia has no absolute advantage and a comparative advantage in Clothing production. (b) (c) (d) Mount Lawley Senior High School 4 2011: Semester 1 Exam: Stage 3 Economics 5. The two countries can realise mutual gains from trade if they agree on terms of trade that are: (a) (b) (c) (d) greater than 0.6 units of clothing and less than 1 unit of clothing for per unit of food. greater than 1 unit of clothing for per unit of food. less than 0.6 units of clothing for per unit of food. less than 1 unit of clothing for per unit of food. 6. Protection results in a (a) (b) (c) (d) more efficient allocation of resources and a lower level of national income. less efficient allocation of resources and a higher level of national income. less efficient allocation of resources and a lower level of national income. more efficient allocation of resources and a higher level of national income. Use the model below to answer question below. The most heavily protected markets in global economy, such as agriculture, are protected by both tariff and subsidy. The model below shows the effect of a tariff and subsidy for a hypothetical market. 7. If both tariffs and subsidy are imposed on this market, then the quantity of imports will be: (a) (b) (c) (d) 500. 750. 250. 50. Mount Lawley Senior High School 5 2011: Semester 1 Exam: Stage 3 8. What indicator measures trade as a share of GDP? (a) (b) (c) (d) Terms of Trade Index. Trade Weighted Index. Trade Intensity Ratio. Capital Output Ratio. 9. Over the past 10 years Australia’s importance relative to ______________________________________________________________________ __________________________________________________________________________________________________________ Economics exports have increased in exports. Which one of the following correctly completes the statement above? (a) (b) (c) (d) 10. Which one of the following global factors is most likely to boost Australia’s exports? (a) (b) (c) (d) 11. a credit on the Current Account. a debit on the Current Account. a credit on the capital and financial account. a debit on the capital and financial account. Which of the following statements is correct? (a) (b) (c) (d) 13. Urbanisation in Asia Strong growth in Europe US transnationals setting up factories in Africa Appreciation of the Australian dollar against all major currencies The payment of dividends by an American company to its Australian shareholders appears in the Australian Balance of Payments as: (a) (b) (c) (d) 12. Services; mining Mining; rural Manufactured; rural Manufactured; services A country will have current account surplus if it imports more than it exports. A country will have a capital and financial account deficit if it imports more than it exports. A country that has current account surplus will lend savings to the rest of the world. A current account deficit is an indication that a country definitely has an excessively high level of imports. In equilibrium, net exports equal (a) (b) (c) (d) the balance on goods and services plus the net income minus net transfers. direct foreign investment plus domestic investment. the balance on financial account plus balance on goods and services plus net income. government savings plus private sector savings minus domestic investment. Mount Lawley Senior High School 6 2011: Semester 1 Exam: 14. increasing the volume of imports obtained from a given amount of exports. creating an excess of exports over imports. decreasing the exchange rate value of the Australian dollar. increasing the foreign debt. A deterioration in a country’s terms of trade will, ceteris paribus, cause (a) (b) (c) (d) 18. A decrease in Australia’s imports of capital goods. An in increase in export volumes of agricultural goods. A decrease in global commodity prices. A reduction in global prices of manufactured consumer goods. A favourable movement in a country’s terms of trade tends to raise the standard of living in the economy by: (a) (b) (c) (d) 17. a decrease in economic growth. capital expansion in domestic manufacturing plants. a positive gap between domestic savings and domestic investment. an increase in exports. Which of the following would improve Australia’s terms of trade? (a) (b) (c) (d) 16. Economics An increasing current account deficit is most likely to be a result of (a) (b) (c) (d) 15. Stage 3 trade balance to increase and the value of the country’s currency to appreciate. trade balance to increase and the value of the country’s currency to depreciate. trade balance to decrease and the value of the country’s currency to depreciate. trade balance to decrease and the value of the country’s currency to appreciate. The demand for Australian dollars in the foreign exchange market is downward sloping because when the exchange rate falls (a) Australians demand fewer foreign goods as these goods have become more expensive. (b) Australians demand more foreign goods as these goods have become less expensive. (c) foreigners demand fewer Australian goods as these goods have become more expensive. (d) foreigners demand more Australian products as these products have become less expensive. 19. The movement shown in the model may have been due to: (a) (b) (c) (d) an increase in domestic interest rate. a decrease in income payments to foreigners. a reduction in the number of overseas travellers in Australia.. a fall in national savings. Mount Lawley Senior High School 7 2011: Semester 1 Exam: 20. government intervention to alter the level of imports and exports. government intervention to alter the value of exchange rate. speculative, herd-like behaviour by major players in foreign exchange markets. lack of understanding by currency dealers of the true state of the economy. Which of the following, everything else being equal, is likely to lead to an appreciation in the value of $A? (i) (ii) (iii) (iv) (a) (b) (c) (d) 22. a rise in commodity prices. a fall in the value of interest rates in the US. a strong stock market (rising share prices) in the US. a slow-down in Australia’s growth rate and a reduction of investor confidence. i and ii only. I and iii only. ii and iii only. ii and iv only. Which of the following would help reduce Australia’s foreign debt? (a) (b) (c) (d) 23. Economics A floating currency may move beyond the level indicated by economic fundamentals of the economy due to (a) (b) (c) (d) 21. Stage 3 an increase in the current account deficit. a reduction in the Commonwealth government budget deficit. a reduction in the rate of household saving. an increase in the domestic consumer spending. Refer to the table below: Real GDP ($mn) Net Foreign Liabilities($mn) Net Foreign Debt($mn) $304 990 million $768 268 million $647 895 million What is the value of net foreign equity as a percentage of real GDP? (a) (b) (c) (d) 39.5 %. 15.7 %. 8.4 %. 250 %. 24. In the long run, capital inflow into the Australian economy is most likely to (a) (b) (c) increase the rate of economic growth but decrease the capacity to export. increase the rate of economic growth and increase the capacity to export. decrease the rate of economic growth as repayments and dividends flow out of the country. decrease the rate of economic growth and the capacity to export. (d) END OF SECTION ONE Mount Lawley Senior High School 8 2011: Semester 1 Exam: Stage 3 Section Two: Data interpretation/Short response Economics 36% (36 Marks) This section has three (3) questions. Answer all questions. Write your answers in the space provided. Suggested working time for this section is 65 minutes. 25. This question refers to the article below: Strong demand in Asia boosts Australia’s global competitiveness Media release issued: Monday, 24 May 2010 Melbourne: Strong demand from Asia has boosted Australia's position in the world's most comprehensive and long-running competitiveness study. The 2010 World Competitiveness Yearbook, is produced by IMD's World Competitiveness Centre with the help of CEDA and other international partners. Australia moved up to 5th place of the 58 nations included in the study, after ranking 7th for the past two years. Of Australia's ranking, CEDA's Chief Executive, David Byers, said the rise to 5th place pointed to the relative strength of the domestic economy and its resilience to economic cycles. As strong Asian demand for commodities had underpinned the rise, it emphasized the critical need to maintain high levels of investment in the resources sector. "The Yearbook provides independent, international verification that Australia is in a solid comparative position after the GFC", Mr Byers said. http://www.ceda.com.au/news-articles/2010/05/24/mr_wcy_2010 (a) Define “international competitiveness”. (1 mark) ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. (b) Outline and explain the main determinants of international competitiveness. (3 marks) ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. Mount Lawley Senior High School 9 2011: Semester 1 Exam: (c) Stage 3 Explain the benefits gained by an economy by improving its international competitiveness. Economics (3 marks) ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. (d) Account for the major changes that have taken place in Australia’s direction of trade in recent years. (5 marks) ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. Mount Lawley Senior High School 10 2011: Semester 1 Exam: Stage 3 Economics ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. Mount Lawley Senior High School 11 2011: Semester 1 Exam: Stage 3 26. This question refers to the graph below: (a) Explain what is meant by Terms of Trade. Economics (12 marks) (1 mark) ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. (b) Describe the movement observed in the terms of trade over the last 20 years. (1 mark) ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. (c) Calculate the approximate percentage change in the value of the terms of trade from 1980 to 2010. (1 mark) ……………………………………………………………………………………………………. (d) Outline two (2) possible reasons for the change observed in the value of the terms of trade index in recent years. (3 marks) ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. Mount Lawley Senior High School 12 2011: Semester 1 Exam: (e) Stage 3 Economics Discuss the economic implications for the domestic economy of the recent trend in Australia’s terms of trade. (6 marks) ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. Mount Lawley Senior High School 13 2011: Semester 1 Exam: Stage 3 Economics ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. Mount Lawley Senior High School 14 2011: Semester 1 Exam: 27. Stage 3 Economics Refer to the table below and answer the questions that follow: AUSTRALIA’S BALANCE OF PAYMENTS - CURRENT ACCOUNT ($ million) Goods Credit Goods Debit Net services Net income plus current transfers 42409 42535 65476 46016 60544 45679 48917 60470 50300 52823 228 -567 -1289 -227 -965 -12013 -12614 -10882 -14029 -14056 Dec-2006 Dec-2007 Dec-2008 Dec-2009 Dec-2010 Current account balance -15055 -19563 -7166 -18540 ? source: www.rba.gov.au (a) i. Calculate the Balance on Goods and Services for 2010. _______________________ ii. Calculate the Current Account Balance for 2010. (b) ________________________ (2 marks) Give reasons for the change observed in the Balance on Goods and Services from December 2009 to December 2010. (4 marks) ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. Mount Lawley Senior High School 15 2011: Semester 1 Exam: (c) Stage 3 Economics With reference to the data given, discuss three (3) factors that may affect the size of Australia’s Current Account Balance. (6 marks) ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. Mount Lawley Senior High School 16 2011: Semester 1 Exam: Stage 3 Economics ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. ……………………………………………………………………………………………………. END OF SECTION TWO Mount Lawley Senior High School 17 2011: Semester 1 Exam: Stage 3 Section Three: Extended response Economics 40% (40 Marks) This section contains four (4) questions. You must answer two (2) questions. Write your answers in the space provided and clearly number your answers. Suggested working time for this section is 80 minutes. Question 28 Saul Eslake, an eminent economist, has been quoted as saying ‘…globalisation is…simply the logical extension of the tendency towards specialisation and trade”. (a) Explain what is meant by globalisation and discuss the economic effects of globalisation, both positive and negative. (10 marks) (b) Discuss briefly the influence of international organisations and contemporary trading blocs and agreements in promoting globalisation. (10 marks) Question 29 (a) Using a suitable model and relevant example, explain the impact of tariffs on the consumers and producers in the domestic economy. (12 marks) (b) Identify two ways through which protection can be reduced and analyse the effects of reducing the level of protection on an economy using a relevant model (8 marks) Question 30 (a) Discuss, using appropriate models, the likely impact of the current resources boom on Australia’s terms of trade, exchange rate and on the Balance of Payments. (12 marks) (b) Explain the implications of a sustained appreciation in the value of Australian dollar on the various sectors of the economy. (8 marks) Question 31 (a) Explain the relationship between net foreign liabilities and the current account balance. (8 marks) (b) Discuss the effects that a reduction in the level of foreign investment would have on Australia’s balance of payments and living standards. (12 marks) END OF SECTION THREE Mount Lawley Senior High School 18