TCE Economics (ECN315) 2016: Common Assessment Item(FINAL - 31 May 16)
Unit 2: Economic Management
Examination Section C
Criterion 3: Describe and analyse problems arising from economic issues and events.
Criterion 5: Communicate economic ideas and information.
Time available: 5 minutes reading time plus
45 minutes writing time
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Carefully examine the extracts below.
Source 1:
What does the price of poultry, petrol and postage stamps have to do with your mortgage interest rate? Plenty, and it’s more important than people think. That’s because these goodies, together with alcohol, clothes, education and more help make up Australia’s Consumer Price Index.
Last month’s Australian Bureau of Statistics data put annual CPI inflation at 1.7% which is good news for many. The Reserve Bank of Australia, which sets the official interest rate aims to keep inflation between 2 and 3 per cent to encourage strong and sustainable growth in the economy.
Australia’s continuing low inflation environment has allowed the RBA to keep the official interest rate steady since May 2015. The Governor of the RBA has said “with growth in labour costs continuing to be subdued and inflation being restrained around the world it is likely that consumer price inflation will remain low over the coming year”.
Within Australia’s CPI there are some big swings in individual goods and services but it balances out overall. For example, health, education and alcohol costs were up more than 5% over the last year whereas transport and communications costs fell.
Source: Adapted from
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Using evidence from the stimulus material and from your course, answer the following questions. Use economic terms and concepts in your answer.
a)Explain why Australia’s CPI “balances out overall” (Lines 13/14) although “there are some big swings in individual goods and services” (Line 13). (6 marks)
b) “What does the price of poultry, petrol and postage stamps have to do with your mortgage interest rate? “ (Line 1). Explain why an increase in the CPI
might add to the costs of property buyers? (6 marks)
c)Analyse the factors that have caused the CPI inflation to remain at a low level since May 2015. (6 marks)
d)Analyse the impacts, in terms of costs and benefits, of low CPI inflation and low interest rates on income distribution and standards of living. (6 marks)
e)To what extent would a CPI inflation rate echoing the 5% rate of health, education and alcohol goods change the balance of costs and benefits for differing social groups in Australian society? (6 marks)
f)Assess the impacts a high inflation rate above the target set by the Reserve Bank of Australia might have on the achievement of the macroeconomic objectives to achieve sustainable economic growth and low unemployment. (6 marks)