2018 Economics Written examination2018 ECONOMICS EXAM 2 SECTION A – continued SECTION A – Multiple-choice questions Instructions for Section A Answer all questions in pencil on

ECONOMICSWritten examination

Thursday 1 November 2018 Reading time: 2.00 pm to 2.15 pm (15 minutes) Writing time: 2.15 pm to 4.15 pm (2 hours)

QUESTION AND ANSWER BOOK

Structure of bookSection Number of

questionsNumber of questions

to be answeredNumber of

marks

A 15 15 15B 4 4 65

Total 80

• Studentsarepermittedtobringintotheexaminationroom:pens,pencils,highlighters,erasers,sharpenersandrulers.

• StudentsareNOTpermittedtobringintotheexaminationroom:blanksheetsofpaperand/orcorrectionfluid/tape.

• Nocalculatorisallowedinthisexamination.

Materials supplied• Questionandanswerbookof24pages• Answersheetformultiple-choicequestions• Additionalspaceisavailableattheendofthebookifyouneedextrapapertocompleteananswer.

Instructions• Writeyourstudent numberinthespaceprovidedaboveonthispage.• Checkthatyournameandstudent numberasprintedonyouranswersheetformultiple-choice

questionsarecorrect,andsignyournameinthespaceprovidedtoverifythis.• AllwrittenresponsesmustbeinEnglish.

At the end of the examination• Placetheanswersheetformultiple-choicequestionsinsidethefrontcoverofthisbook.

Students are NOT permitted to bring mobile phones and/or any other unauthorised electronic devices into the examination room.

©VICTORIANCURRICULUMANDASSESSMENTAUTHORITY2018

SUPERVISOR TO ATTACH PROCESSING LABEL HEREVictorian Certificate of Education 2018

STUDENT NUMBER

Letter

2018ECONOMICSEXAM 2

SECTION A – continued

SECTION A – Multiple-choice questions

Instructions for Section AAnswerallquestionsinpencilontheanswersheetprovidedformultiple-choicequestions.Choosetheresponsethatiscorrectorthatbest answersthequestion.Acorrectanswerscores1;anincorrectanswerscores0.Markswillnotbedeductedforincorrectanswers.Nomarkswillbegivenifmorethanoneansweriscompletedforanyquestion.

Question 1ThetypeofunemploymentcausedbytechnologicalchangeisknownasA. cyclicalunemployment.B. frictionalunemployment.C. structuralunemployment.D. hard-coreunemployment.

Question 2ExpansionarymonetarypolicyismostlikelytocauseA. adecreaseinwelfarepayments.B. anappreciationoftheAustraliandollar.C. areductionintherateofeconomicgrowth.D. anincreaseinthesizeofthebudgetdeficit.

Question 3

S0

S1

D1D0

B

HA

EC

price of hats

quantity of hats per period

Ahealthwarningstatingthatwearingahatreducesskincancerwouldbelikelytochangetheequilibriuminthehatmarket,showninthediagramabove,frompointAtopointA. B.B. C.C. H.D. E.

3 2018ECONOMICSEXAM

SECTION A – continuedTURN OVER

Question 4Ofthefollowingpolicyinitiatives,whichoneisleastlikelytoincreaseaggregatesupplyintheeconomy?A. increasedgovernmentspendingoninfrastructureB. increasedgovernmentspendingoneducationandtrainingC. increasedgovernmentoutlaysallocatedtopaymentofunemploymentbenefitsD. areductionincompanytaxrates

Question 5ThepaymentofdividendstooverseasshareholderswillappearinthebalanceofpaymentsasaA. creditinthecapitalandfinancialaccount.B. debitinthecapitalandfinancialaccount.C. creditinthebalanceofpaymentsoncurrentaccount.D. debitinthebalanceofpaymentsoncurrentaccount.

Question 6AnincreaseinproductivityislikelytoA. worsenAustralia’sinternationalcompetitivenessandincreaseinflation.B. worsenAustralia’sinternationalcompetitivenessanddecreaseinflation.C. improveAustralia’sinternationalcompetitivenessandincreaseinflation.D. improveAustralia’sinternationalcompetitivenessanddecreaseinflation.

Question 7Refertothefollowingaggregatedemand(AD)andaggregatesupply(AS)diagram.

AS2AS1

AD

price level

Real GDP

WhichoneofthefollowingislikelytocauseashiftintheaggregatesupplycurvefromAS1toAS2?A. adecreaseininterestratesB. anincreaseinproductioncostsC. anincreaseingovernmentspendingD. anincreaseinprofitabilityofbusinesses

2018 ECONOMICS EXAM 4

SECTION A – continued

Question 8Consider the following data for an economy over a two-year period. The prices given reflect the average for the relevant year.

Year 1 Year 2

Index of export prices 100 96

Index of import prices 100 120

What conclusion can be drawn from the data above?A. Between Year 1 and Year 2 the terms of trade improved.B. Between Year 1 and Year 2 the terms of trade deteriorated.C. Between Year 1 and Year 2 the terms of trade remained unchanged.D. It cannot be determined if there has been a change between Year 1 and Year 2.

Question 9Which one of the following would reduce the size of the Australian Government’s budget deficit?A. company tax cutsB. personal income tax cutsC. increasing the rate of the goods and services tax (GST)D. increasing the tax-free threshold for personal income tax

Question 10The degree of price elasticity of demand is important to producers because it reveals howA. responsive quantity demanded is to a change in price.B. much of the product will be supplied at different prices.C. responsive demand for a product is to advertising or promotional campaigns.D. responsive quantity demanded is to a change in the level of consumer income.

Question 11Which one of the following is not a feature of a perfectly competitive market?A. Firms have ease of entry into and exit from the market.B. Products sold in the market are homogenous.C. Consumer sovereignty exists.D. Resources are not mobile.

5 2018ECONOMICSEXAM

END OF SECTION ATURN OVER

Question 12Whentheeconomyisexperiencinglowratesofinflationandlowratesofeconomicandemploymentgrowth,theReserveBankofAustraliawillbelikelytoA. sellgovernmentsecuritiesinordertoincreasethecashrate.B. sellgovernmentsecuritiesinordertodecreasethecashrate.C. purchasegovernmentsecuritiesinordertoincreasethecashrate.D. purchasegovernmentsecuritiesinordertodecreasethecashrate.

Question 13ImaginetheAustralianGovernment’sbudgetisinsurplus.Iftherateofeconomicgrowthweretoslow,thismayultimatelyresultinaA. smallersurplusbudget,asreceiptsriseandoutlaysfall.B. budgetdeficit,asreceiptsriseandoutlaysfall.C. largersurplusbudget,asreceiptsriseandoutlaysfall.D. smallersurplusbudget,asreceiptsfallandoutlaysrise.

Question 14WhichofthefollowingwouldbethemostlikelyimpactofanincreaseininflationintheUnitedStates(US)?A. anincreaseinUSinterestratesandadepreciationoftheAustraliandollarB. anincreaseinUSinterestratesandanappreciationoftheAustraliandollarC. adecreaseinUSinterestratesandadepreciationoftheAustraliandollarD. adecreaseinUSinterestratesandanappreciationoftheAustraliandollar

Question 15ThefollowingtableindicatesthequarterlyConsumerPriceIndex(CPI)outcomesforahypotheticaleconomy.

CPI

June 2017 110

Sept. 2017 115

Dec. 2017 118

Mar. 2018 120

June 2018 121

Withreferencetothedatainthetable,theannualrateofinflationfortheyearendedJune2018isA. 5%B. 8%C. 10%D. 11%

2018ECONOMICSEXAM 6

SECTION B – Question 1–continued

Question 1 (17marks)a. Distinguishbetweenallocativeefficiencyanddynamicefficiency. 3marks

SECTION B – Written responses

Instructions for Section BAnswer allquestionsinthespacesprovided.

7 2018ECONOMICSEXAM

SECTION B – Question 1–continuedTURN OVER

b. Explainhowadecreaseinthepriceofacomplementcanaffectthedemandforagood.Constructfullylabelleddemandandsupplycurvestoillustrateyourexplanation. 4marks

2018ECONOMICSEXAM 8


c. Describethedifferencebetweenamovementalongthesupplycurveandashiftofthesupplycurve.Constructfullylabelleddemandandsupplycurvestoillustrateyourdescription. 4marks

9 2018ECONOMICSEXAM

SECTION B – continuedTURN OVER

d. Explainhoweitherexternalitiesorasymmetricinformationwouldresultinmarketfailure. 3marks

e. Explainonegovernmentactionthatmightbetakentoaddressthemarketfailureexplainedinpart d. 3marks


SECTION B – Question 2 – continued

Question 2 (14 marks)a. During 2017 and 2018 Australia’s annual wages growth remained weak.

Describehowwagesgrowthremainingatlowlevelsmighthaveinfluencedthestanceandfocus of monetary policy during 2017 and 2018. 3 marks

b. Monetarypolicyinfluencesaggregatedemandandthewidereconomyviatransmissionmechanisms.

Imagine the Reserve Bank of Australia raised the cash rate from 1.50% to 2.00%. Explain how two monetary policy transmission mechanisms might have operated to affect the level of aggregate demand and the rate of economic growth under those conditions. 8 marks

11 2018ECONOMICSEXAM


2018ECONOMICSEXAM 12

SECTION B–continued

c. Outlineoneweaknessassociatedwithusingmonetarypolicytoincreaseaggregatedemandandtherateofeconomicgrowth. 3marks



Question 3 (14marks)

%

0

–3

–6

–9

%

0

3 3

–3

–6

–92007 2011 2015

year2018

current account balance

trade balance

AustraliaCurrent account balanceper cent of nominal GDP

Source:adaptedfromABS;RBAChartPack,‘TheAustralianEconomyandFinancialMarkets’,August2018,p.17

a. Referringtothegraphabove,outlineonefactorthatmightexplainthetrendinAustralia’scurrentaccountbalanceduring2017and2018. 3marks



b. DiscussonelikelyeffectoftradeliberalisationonAustralia’sinternationalcompetitivenessandlivingstandards. 4marks

c. Explainonelikelyeffectofdecreasingtheannualimmigrationintakefrom200000to100000onthelabourmarketandaggregatesupply. 4marks


SECTION B–continuedTURN OVER

d. Outlineonestrengthofusingimmigrationpolicytoachievethegoalofstrongandsustainableeconomicgrowth. 3marks



Question 4 (20marks)

%

8

6

4

2

%

8

10 10

6

4

22010 2011 2012 2013 2014

year2015 2016 2017

underemployment rate

unemployment rate

AustraliaLabour market

2018


year ended

AustraliaGDP growth

6

4

2

0

–2

6% %

4

2

0

–22010 2011 20132012 2014

year2015 2016 2017 2018




a. WithreferencetothetwographsforAustralia’slabourmarketandGDPgrowth,assesstheextenttowhichtheAustralianGovernmenthasachieveditsdomesticeconomicgoalsoffullemploymentandstrongandsustainableeconomicgrowthduringboth2017and2018. 6marks



b. TheAustralianGovernmenthasrunanumberofbudgetdeficitsinrecentyears.

Outlinetwo optionsavailabletothegovernmentwhendecidinghowtofinanceabudgetdeficit. 4marks

Option1

Option2



c. ‘TheGovernmentisdeliveringonitsfiscalstrategyandbudgetrepair,withthe2017−18Mid-YearEconomicandFiscalOutlook(MYEFO)confirmingthebudgetremainsontracktoachieveasurplusin2020−21.’

Source:TheCommonwealthofAustralia

ExplainonereasonfortheAustralianGovernment’srationalerelatedtoitsfiscalstrategyandbudgetrepair,anditswishtoachieveasurplusby2020−2021. 3marks


SECTION B – Question 4 – continued

d. Examine the likely effect of one budgetary policy tax initiative announced in the 2018−2019 Budget on aggregate demand and on the achievement of one of the government’s domestic economic goals. 4 marks

21 2018 ECONOMICS EXAM

TURN OVER

e. Select one of the following aspects of budgetary policy:• research and development grants• subsidies• welfare reform policy

Explain how the selected aspect is designed to influence aggregate supply and the achievement of one of the government’s domestic economic goals. This goal must be different from the goal examined in part d. 3 marks

END OF QUESTION AND ANSWER BOOK


Extra space for responses

Clearly number all responses in this space.


TURN OVER


Ananswerbookisavailablefromthesupervisorifyouneedextrapapertocompleteananswer.Pleaseensureyouwriteyourstudent numberinthespaceprovidedonthefrontcoveroftheanswerbook.At the end of the examination, place the answer book inside the front cover of this question and answer book.

Documents

2018 Economics Written examination2018 ECONOMICS EXAM 2 SECTION A – continued SECTION A – Multiple-choice questions Instructions for Section A Answer all questions in pencil on