2016 economics written examination...2016 economics exam 2 section a continued section a –...

ECONOMICSWritten examination

Thursday 27 October 2016 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 30B 4 4 60

Total 90

• 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.

©VICTORIANCURRICULUMANDASSESSMENTAUTHORITY2016

SUPERVISOR TO ATTACH PROCESSING LABEL HEREVictorian Certificate of Education 2016

STUDENT NUMBER

Letter

2016ECONOMICSEXAM 2

SECTION A – continued

SECTION A – Multiple-choice questions

Instructions for Section AAnswerallquestionsinpencilontheanswersheetprovidedformultiple-choicequestions.Choosetheresponsethatiscorrectorthatbest answersthequestion.Acorrectanswerscores2;anincorrectanswerscores0.Markswillnotbedeductedforincorrectanswers.Nomarkswillbegivenifmorethanoneansweriscompletedforanyquestion.

Question 1Whichoneofthefollowingcomponentsofaggregatedemandisthemostunstable?A. privateinvestmentexpenditureB. privateconsumptionexpenditureC. governmentinvestmentexpenditureD. governmentconsumptionexpenditure

Question 2Whenresourcesareusedtoproducethegoodsandservicesthatbestsatisfysociety’sneedsandwants,thisisknownasA. dynamicefficiency.B. allocativeefficiency.C. intertemporalefficiency.D. productiveortechnicalefficiency.

Question 3Theconstructionofatallapartmentbuildingthatblocksoutthelighttoanearbypublicparkisanexampleofwhatkindofmarketfailure?A. marketpowerB. apublicgoodC. anegativeexternalityD. asymmetricinformation

Question 4Whichoneofthefollowingtermsdescribesthe‘potentialoutputofaneconomy’?A. productionB. productivityC. productivecapacityD. GrossDomesticProduct(GDP)

3 2016ECONOMICSEXAM

SECTION A – continuedTURN OVER

Question 5ConsiderthefollowinghypotheticalConsumerPriceIndex(CPI)data.

Time period CPI

Quarter1 100

Quarter2 101

Quarter3 102

Quarter4 103

TheannualisedrateofinflationforQuarter2isA. 1%B. 3%C. 4%D. 6%

Question 6ArecessioninAustraliainconjunctionwithadepreciationoftheAustraliandollarislikelytoleadtoA. anincreaseinthevolumeofAustralia’simportsandadecreaseinthevolumeofexports.B. adecreaseinthevolumeofAustralia’simportsandanincreaseinthevolumeofexports.C. adecreaseinthevolumeofAustralia’simportsandadecreaseinthevolumeofexports.D. anincreaseinthevolumeofAustralia’simportsandanincreaseinthevolumeofexports.

Question 7Whichoneofthefollowinggovernmentpolicieswillnotleadtoalong-termexpansionofaggregatesupply?A. loweringthecompanytaxationrateB. increasingskilledmigrationby5000personsperyearC. extendingthesolarenergyrebateschemeforhouseholdsD. increasingunemploymentbenefitsbyanamountequaltotherateofinflation

Question 8The‘transmissionmechanism’referstothewayachangeininterestratesaffectseconomicactivity.Thetransmissionoccursviaanumberofchannels.ThechannelthataffectsdecisionsbythoseintheeconomywithexistingvariableratehomeloansisknownastheA. assetvaluesorassetpriceschannel.B. exchangeratechannel.C. costofcreditchannel.D. cashflowchannel.

2016ECONOMICSEXAM 4

SECTION A – continued

Question 9Considerthefollowinginformationrelatedtothelabourmarketofahypotheticaleconomy.

Year Population who are of working age (millions)

Employed persons (millions)

Unemployed persons (millions)

1 20 14 2

2 25 17 2

IncomparingYear2toYear1,whichoneofthefollowingstatementsistrue?A. Year2hasalowerparticipationrateandalowerunemploymentrate.B. Year2hasalowerparticipationrateandahigherunemploymentrate.C. Year2hasahigherparticipationrateandalowerunemploymentrate.D. Year2hasahigherparticipationrateandahigherunemploymentrate.

Question 10Ifalargepercentagefallinaproduct’spricecausesasmallpercentageincreaseinthequantitydemanded,thenA. supplyispriceelastic.B. demandispriceelastic.C. supplyispriceinelastic.D. demandispriceinelastic.

Question 11ConsiderthefollowingCPI,GDPandunemploymentratedataforahypotheticaleconomyovera two-yearperiod.

Year CPI (%)

GDP (%)

Unemployment rate (%)

1 2.9 3.5 4.5

2 2.1 2.0 5.1

Withreferencetothedatainthetableabove,attheendofYear2,whichpolicymixresponsemightberecommended?A. expansionarybudgetarypolicyandexpansionarymonetarypolicyB. contractionarybudgetarypolicyandcontractionarymonetarypolicyC. expansionarybudgetarypolicyandcontractionarymonetarypolicyD. contractionarybudgetarypolicyandexpansionarymonetarypolicy

5 2016ECONOMICSEXAM

END OF SECTION ATURN OVER

Question 12WhentheReserveBankofAustralia(RBA)sellsgovernmentsecuritiesinthemoneymarketA. interestrateswilldecrease.B. thesupplyofmoneywilldecrease.C. therewillbeareductioninunemployment.D. consumptionofgoodsandserviceswillincrease.

Question 13Assumethereisanincreaseinthechildcaresubsidyforlow-incomeearnersandanincreaseinthehighestmarginalincometaxrate.WhatisthelikelyeffectontheGiniCoefficientandtheLorenzCurve?A. TheGiniCoefficientwillincreaseandtheLorenzCurvewillmoveclosertothe45-degreeline.B. TheGiniCoefficientwillincreaseandtheLorenzCurvewillmovefurtherawayfromthe45-degree

line.C. TheGiniCoefficientwilldecreaseandtheLorenzCurvewillmoveclosertothe45-degreeline.D. TheGiniCoefficientwilldecreaseandtheLorenzCurvewillmovefurtherawayfromthe45-degree

line.

Question 14Ifaproductbecamelesspopular,whileatthesametimeincreasedcostsofproductioncausedthesupplyoftheproducttodecrease,itcanbeconcludedthat,forthisproduct,theA. equilibriumpricemightriseorfall.B. equilibriumquantitymightriseorfall.C. equilibriumpriceandtheequilibriumquantitywouldrise.D. equilibriumpriceandtheequilibriumquantitywouldfall.

Question 15Australia’sunemploymentratedecreasedfrom6.4%inJanuary2015to5.8%inFebruary2016.Theimpactofthischangeongovernmenttaxreceipts,governmentoutlaysandthesizeofthebudgetdeficitislikelytobethatA. taxreceiptsincrease,outlaysincrease,thebudgetdeficitisreduced.B. taxreceiptsincrease,outlaysdecrease,thebudgetdeficitisreduced.C. taxreceiptsincrease,outlaysdecrease,thebudgetdeficitisincreased.D. taxreceiptsdecrease,outlaysincrease,thebudgetdeficitisincreased.

2016ECONOMICSEXAM 6

SECTION B – Question 1–continued

Question 1 (14marks)

2000 2016

index

120

100

80

60

40

Australia’s terms of trade2013/14 average = 100, log scale

Source:adaptedfromABS;RBAChartPack, ‘TheAustralianEconomyandFinancialMarkets’,August2016,p.15

a. Refertothegraphofthetermsoftrade.

OutlineonefactorthatmightexplainthetrendinAustralia’stermsoftradeoverthepasttwoyears. 2marks

SECTION B – Written responses

Instructions for Section BAnswer allquestionsinthespacesprovided.

7 2016ECONOMICSEXAM

SECTION B – Question 1–continuedTURN OVER

b. AnalysehowanunfavourablemovementinthetermsoftradeislikelytoaffectAustralia’s 4marks

• balanceofpaymentsoncurrentaccount

• livingstandards.

2016ECONOMICSEXAM 8

SECTION B – Question 1–continued

c. DescribehowadepreciationoftheAustraliandollarmightaffecttherateofinflationinAustralia. 2marks

d. Usingoneexample,explainhowamicroeconomicreformpolicymightbeusedtoimproveAustralia’sinternationalcompetitivenessandexternalstability. 3marks

9 2016ECONOMICSEXAM

SECTION B – continuedTURN OVER

e. Usingone example,explainhowbudgetarypolicymightbeusedtoinfluenceAustralia’sinternationalcompetitivenessandexternalstability. 3marks

2016ECONOMICSEXAM 10

SECTION B – Question 2–continued

Question 2 (14marks)a. Outlinetwocharacteristicsofaperfectlycompetitivemarket. 2marks

11 2016ECONOMICSEXAM

SECTION B – Question 2–continuedTURN OVER

b. Explainwhyaperfectlycompetitivemarketismorelikelytoachieveanefficientallocationofresourcesthananoligopolisticmarket. 4marks

2016ECONOMICSEXAM 12

SECTION B – Question 2–continued

c. Outlineonereasonforgovernmentinterventioninthemarketinordertostabilisethelevelofeconomicactivity. 2marks

13 2016ECONOMICSEXAM

SECTION B – continuedTURN OVER

d. ReferringtoaspecificexampleofamarketinAustralia(suchasanagriculturalmarket,acommoditymarket,aretailmarket),describeoneeconomicfactorinfluencingtheoperationofthismarketanddiscusstheextenttowhichthismarketoperatesfreelyinAustralia. 6marks

2016ECONOMICSEXAM 14

SECTION B – Question 3–continued

Question 3 (20marks)Overthepasttwoyears,theAustralianGovernmenthasbeeninvolvedindiscussionsabouthowtoreformAustralia’staxationsystem.

a. OutlineonereasonwhytheAustralianGovernmentbelievesAustralia’staxationsystemneedstobereformed. 2marks

15 2016ECONOMICSEXAM

SECTION B – Question 3–continuedTURN OVER

b. Explainhowachangeinbothpersonalincometaxpolicyandcompanytaxpolicymightinfluenceaggregatesupplyandthereforetherateofeconomicgrowth. 6marks

2016ECONOMICSEXAM 16

SECTION B – Question 3–continued

c. Identifyoneexampleofadiscretionarybudgetarypolicyannouncedinthe2016–2017Budget,andexaminehowthispolicymightinfluencelivingstandardsandlong-termeconomicprosperity. 4marks

17 2016ECONOMICSEXAM

SECTION B – Question 3–continuedTURN OVER

d. OutlineonefactorthatmayhaveinfluencedtheoperationoftheReserveBankofAustralia’s(RBA)monetarypolicystanceduring2016. 2marks

2016ECONOMICSEXAM 18

SECTION B – continued

e. Describehowbudgetaryandmonetarypolicieshaveoperatedinthepolicymixin2016toinfluenceaggregatedemandandtherateofeconomicgrowth. 6marks

19 2016ECONOMICSEXAM

SECTION B – Question 4–continuedTURN OVER

Question 4 (12marks)TheAustralianGovernment‘facesagrowingjobschallengeasthenumberofpeopletrappedinlong-termunemploymenthitsa16-yearhigh…’

Source:MattWade,‘Long-termunemployment:Sharprisetakingatollon Australia’swellbeing’,Sydney Morning Herald,6June2015

a. Outlineoneeconomicfactorthatmightexplainwhylong-termunemploymenthasincreasedinAustraliaoverrecentyears. 2marks

2016ECONOMICSEXAM 20

SECTION B – Question 4–continued

b. Describethelikelyeffectofbeinglong-termunemployedonbothequityofincomedistributionandlivingstandards. 4marks

21 2016ECONOMICSEXAM

TURN OVER

c. Usingoneexample,explainhowbudgetarypolicymightbeusedtoincreasethelabourforceparticipationrateand,usinganotherexample,explainhowbudgetarypolicymightbeusedtolowertherateoflong-termunemployment. 6marks

END OF QUESTION AND ANSWER BOOK

2016ECONOMICSEXAM 22

Extra space for responses

Clearly number all responses in this space.

23 2016ECONOMICSEXAM

TURN OVER

2016ECONOMICSEXAM 24

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