Higher School Certificate

NAME………………………………

Economics 2014

Higher School Certificate

Trial Examination

Total Marks - 100

Section I

Section II

Section III

Section IV

SECTION I

Total marks (20)

Attempt Questions 1 –20

Allow about 35 minutes for this section

Answer the questions on the sheet provided

1. What happens when a country’s terms of trade deteriorates?

(A) Fewer export sales to purchase the same quantity of imports

(B) The price of export falls relative to the price of imports

(D) The volume of export falls and the volume of imports rises

2. What are the most useful guides for measuring the economic and social welfare for

an economy?

Economic Welfare / Social Welfare
(A) / Money GDP per capita / Lorenz Curve
(B) / Real GDP per capita / Human Development Index
(C) / Real GDP per capita / Gini Co-efficient
(D) / Real GNE per capita / Human Development Index

3. Based on the following data for an open economy

Year / 2013
GDP / $800
Consumption / $550
Investment / $110
Government / $100
Imports / $10

What would the current account of the balance of payments show?

(A) A surplus of $50

(B) A surplus of $40

(D) A deficit of $40

4. Between years 1 and 2, what changes can be seen in the table?

Year / Price Index / Labour Force Index / Real GDP Index
1
2 / 100
110 / 100
102 / 100
106
Productivity / Money GDP
(A) / Increased by 4% / Increased by 17%
(B) / Decreased by 4% / Decreased by 17%
(C) / Increased by 12% / Increased by 16%
(D) / Decreased by 12% / Decreased by 16%

5. Which of the following most likely indicates a trend towards greater globalisation?

(A) Increases in the volatility of foreign direct investment

(B) Increases in bi-lateral trade agreements between countries

(D) Increases in the growth rates of developing nations

6. Which of the following will be reduced as a result of lower rates of inflation?

(A) Uncertainty in the economy

(B) The level of investment

(D) The level of wages

7. Using the table indicate which country has the highest level of economic growth, based on GDP?

County / Population / GDP $m
1 / 5 / 80
2 / 10 / 140
3 / 15 / 260
4 / 20 / 310

(A) Country 1

(B) Country 2

(D) Country 4

8. Using the table, calculate the equilibrium level of income and the value of the multiplier?

Y / C / I / G
300
400
500
600
700
800 / 275
350
425
500
575
650 / 50
50
50
50
50
50 / 25
25
25
25
25
25
Equilibrium level of Income / Multiplier
(A) / 700 / 2.50
(B) / 500 / 0.75
(C) / 600 / 1.35
(D) / 400 / 0.50

9. Which of the following is most likely to provide the greatest stimulus to domestic economic growth in the short term?

Interest rates / Taxes / Government expenditure
(A) / Decrease / Decrease / Decrease
(B) / Increase / Increase / Increase
(C) / Increase / Increase / Decrease
(D) / Decrease / Decrease / Increase

10. How do economists measure the distribution of income and wealth?

(A) Gini coefficient curve

(B) The Long Run Phillips curve

(D) The Short Run Phillips curve

11. What would be the resulting change if structural changes in the economy have been

successful?

(A) Aggregate demand would increase

(B) Aggregate demand would decrease

(D) Aggregate supply would increase

12. Using the Lorenz curve below:

100 Cumulative %

Income 100

What effect would a shift of the Lorenz curve (A), to the left, have on the gini coefficient and the level of income inequality?

Gini Coefficient / Income Inequality
(A) / Decrease / Fall
(B) / Increase / Rise
(C) / Decrease / Rise
(D) / Increase / Fall

13. If Australia’s interest rates are higher than its global competitors what would be the likely effect on the Australian dollar?

Demand Curve / Value of the Australian Dollar
(A) / Shifts to the left / Falls
(B) / Shifts to the right / Rises
(C) / Shifts to the right / Falls
(D) / Shifts to the left / Rises

14. If over the next twelve months the labour force were to grow by 3% and output per person employed were to grow by 1% then what would be the minimum GDP growth rate necessary to prevent unemployment?

(A) 2%

(B) 3%

(D) 5%

Economic Objectives / Economic Objectives / Economic Objectives
(A) / Environmental management / Structural Change / External Stability
(B) / Equal distribution of income / Full Employment / Microeconomic Reforms
(C) / Price Stability / Economic Growth / Microeconomic Reforms
(D) / Full Employment / Price Stability / External stability

15. What are the main economic objectives of government economic management?

16. Below is a production possibilities curve showing choices a country faces between capital goods output and consumer goods output.

What changes would take place as production moves from point X to point Y?

(A) An opportunity cost and Y should give greater long-run growth than X

(B) Rapid technological change and Y has a higher standard of living

(D) An opportunity cost and future living standards would be greater by using point X

17. What combination of macroeconomic policies could the Australian government use to reduce inflation?

Monetary Policy / Fiscal Policy
(A) / Expansionary / Contractionary
(B) / Expansionary / Expansionary
(C) / Contractionary / Expansionary
(D) / Contractionary / Contractionary

18. What is purchasing power parity used for?

(A) To compare the value of GDP between countries

(B) To compare the value of wealth between countries

(D) To measure the value of world financial transactions

19. What would be the outcome of persistent current account deficits under a floating

exchange rate?

Currency / Foreign Debt
(A) / Decreases / Decreases
(B) / Decreases / Increases
(C) / Increases / Increases
(D) / Increases / Decreases

20. What is the impact of an expansionary monetary policy in the Australian economy?

Cost of Money / Investment / Exchange Rate
(A) / Decreases / Increases / Rises
(B) / Increases / Increases / Falls
(C) / Decreases / Increases / Falls
(D) / Increases / Decreases / Rises

Section II

Total marks (40)

Attempt Questions 21 – 24

Allow about 1 hour and 15 minutes for this section

Answer the questions in the spaces provided.

These spaces provide guidance for the expected length of response.

______

Question 21 (10 marks)

Sustainable development encompasses the idea that the loss of environmental amenity can be substituted for by wealth creation; that putting a price on the environment will help protect it unless degrading it is more profitable; that the 'free' market is the best way of allocating environmental resources; that businesses should base their decisions about polluting behaviour on economic considerations and the quest for profit; that economic growth is necessary for environmental protection and therefore should take priority over it.

Sharon Beder ‘The Politics of Sustainable Development in Australia’

a)
Define the terms Market Failure and Negative Externality.

………………………………………………………………………………………………......

b) Outline ONE conflict between achieving Economic Growth and Ecologically Sustainable

Development.

………………………………………………………………………………………………......

Question 21 continues on page 9

Question 21 continues

c)
Outline ONE government policy aimed at promoting ecologically sustainable development.

………………………………………………………………………………………………......

d) Discuss ONE economic cost and ONE social cost of negative externalities on the

Australian economy.

………………………………………………………………………………………………......

End of question 21

Question 22 (10 marks)

Balance of Payments Items / $billion ($b)
Exports / ?
Imports / 700
Net Services / 100
Net Primary Income / -150
Net Secondary Income / 50
Balance on capital and financial a/c / 200

a)
Calculate the value of Exports.

………………………………………………………………………………………………......

b) Define the term Balance of Payments.

………………………………………………………………………………………………......

c)
Outline ONE impact on the Current Account of an improving Terms of Trade.

………………………………………………………………………………………………......

d) Outline ONE factor that could bring about a deterioration in the balance of goods and services.

………………………………………………………………………………………………......

Question 22 continues on page 11

Question 22 continues

e) Discuss ONE government policy option that could reduce Australia’s CAD.

………………………………………………………………………………………………......

End of question 22

Question 23 (10 marks)

Population (m)
Population / 40
Working age population / 30
Employed / 16
Unemployed / 4

a)
Using the information provided, calculate the unemployment rate and participation rate.

………………………………………………………………………………………………......

b) Define the term labour force.

………………………………………………………………………………………………......

Question 23 continues on page 13

Question 23 continues

c) Discuss the impact of rising unemployment on both economic and social costs within the Australian economy.

………………………………………………………………………………………………......

End of question 23

Question 24 (10 marks)

The diagram below represents the impact of a tariff on a good. The pre-tariff price was $20.

Price $

D S

a)
Calculate the loss of revenue for domestic producers as a result of the tariff.

………………………………………………………………………………………………......

b) Outline ONE impact on the Australian economy of our trading partners using

protectionist policies.

………………………………………………………………………………………………......

Question 24 continues on page 15

Question 24 continues

c)
Outline ONE benefit of a reduction in Australia’s domestic protectionist policies on the Australian economy.

………………………………………………………………………………………………......

d) Discuss TWO problems associated with the Australian government’s policy of

reducing the general levels of trade protection.

………………………………………………………………………………………………......

End of Question 24

Section III

Total marks (20)

Attempt either Question 25 or Question 26

Allow about 35 minutes for this section.

______

In your answer you will be assessed on how well you:

■ demonstrate knowledge and understanding relevant to the question

■ use the information provided

■ apply relevant economic terms, concepts, relationships and theory

■ present a sustained, logical and cohesive response

______

Question 25 (20 marks)

Discuss the Reserve Bank’s use of monetary policy in achieving Australia’s economic

objectives over the last decade.

The weaker-than-expected jobs market has raised questions about whether the Reserve Bank has stimulated the economy enough to support growth in
areas other than mining.
Glenda Kwek SMH February 13, 2014
The Reserve Bank has made it clear that it prefers a lower exchange rate, rather than even lower interest rates, to stimulate growth in the economy. Lower interest rates could also overheat the housing sector, which has already seen home prices rise by 10 per cent last year.
Glenda Kwek SMH February 13, 2014

OR

Question 26 (20 marks)

Discuss the government’s use of fiscal policy to affect economic activity, income distribution and environmental responsibility.

Section IV

Total marks (20)

Attempt either

Question 27 or Question 28

Allow about 35 minutes for this section

______

In your answer you will be assessed on how well you:

■ demonstrate knowledge and understanding relevant to the question

■ apply relevant economic information, terms, concepts, relationships and theory

■ present a sustained, logical and cohesive response

______

Question 27 (20 marks)

Analyse the effects of a fluctuating Australian dollar in achieving Australia’s economic

objectives as part of the global economy.

OR

Question 28 (20 marks)

Analyse the effects of structural change in Australia on economic growth, employment and investment in the current economic climate.

NAME………………………………

SECTION I

Total marks (20)

Attempt Questions 1 –20

Allow about 35 minutes for this section

Select the alternative A, B, C, or D that best answers the question. Fill in the response oval completely.