VCE ECONOMICS 3/ CPAP Practice Examination No. 4

Transcription

1 COMMERCE PRESENTATIONS AND PUBLICATIONS Figures Words Letter Name VCE ECONOMICS 3/ CPAP Practice Examination No. 4 Section Reading time: 15 minutes Writing time: 2 hours QUESTION AND ANSWER BOOK Structure of book Number of questions Number of questions to be answered Number of Marks A B Total 80 Students are permitted to bring into the practice examination: pens, pencils, highlighters, erasers, sharpeners and rulers. Students are NOT permitted to bring into the examination room: blank sheets of paper and/or white out liquid/tape. No calculator is allowed in this examination Materials supplied Question and answer book of 21 pages. Answer sheet for multiple choice questions. Additional space is available at the end of the book if you need extra paper to complete an answer Instructions Write your student number and name in the space provided above on this page. Check that your name and student number are written on your multiple choice answer sheet. All written responses must be in English. At the end of this examination Place the answer sheet for multiple-choice questions inside the front cover of this book. Students are NOT permitted to bring mobile phones and/or any other unauthorised electronic devices into the examination room

2 2 Instructions for section A Answer all questions in pencil on the answer sheet provided for multiple choice questions. Choose the response that is correct or the best answers the question. A correct answer scores 1, an incorrect answer scores 0. Marks will not be deducted for incorrect answers. No marks will be given if more than one answer is completed for any question. Question 1 All of the following factors will impact on the price elasticity of supply, with the exception of: A. The degree of necessity B. Spare capacity C. Durability of goods D. Production period Question 2 Production can be distinguished from productivity because A. Production represents the total output in an economy and productivity is the ratio of output to input(s) B. Production represents the real value of goods and services (i.e. taking inflation into account) and productivity represents the nominal value of goods and services C. Production refers to how efficiently goods and services are made while productivity describes the process of making goods and services D. Production relates to goods being produced whereas productivity relates to services being produced Question 3 Which of the statements below does not reflect the law of demand? A. A rise in the price of cigarettes causes the demand for cigarettes to fall B. An increase in the supply of crude oil leads to a rise in the demand for crude oil C. An increase in the demand for shares causes the price of shares to rise D. A fall in the price of milk causes the demand for milk to rise Question 4 The difference between government debt and external debt is summed up best by which of the following statements? A. Government debt refers to money that is owed by the public sector (i.e. government sector) to domestic lenders whereas external debt refers to money that is owed by the public sector to foreign lenders B. Government debt refers to money that is owed by the public sector to domestic and foreign lenders whereas external debt refers to money owed by foreigners to Australian governments C. Government debt refers to money that is owed by the public sector to domestic and foreign lenders whereas external debt refers to money that is owed by the public and private sectors to foreign lenders D. Government debt refers to the public sector borrowing that has occurred over the past year whereas external debt represents public and private sector borrowing from overseas that has occurred over the past year.

3 3 Question 5 Assume that Australia s productivity growth exceeds productivity growth experienced in New Zealand. Other things being equal, it is most likely that: A. Australia s international competitiveness will decline, the trade deficit will fall and the value of the AUD will rise B. Australia s international competitiveness will improve, the trade deficit will rise and the value of the AUD will rise C. Australia s international competitiveness will improve, the trade deficit will fall and the value of the AUD will fall D. Australia s international competitiveness will improve, the trade deficit will fall and the value of the AUD will rise Question 6 Which of the following statements is most accurate about the performance of the Australian economy over 2017? A. The value of the Australian dollar was below 0.80USD, underlying inflation was within 3-4% and NFD was approximately 40% of GDP B. The unemployment rate was below 7%, the participation rate was above 70% and underlying inflation was less than 3% C. Net Foreign Debt was approximately 5% of GDP, underlying inflation was less than 3% and real GDP growth was less than 4% D. Real GDP growth was below 4%, the current account deficit was less than 7% of GDP and the unemployment rate was below 7% Question 7 Which combination of recent policy initiatives represents attempts by the government to address market failures in the economy? i. The increase in tobacco excise ii. Further loosening of monetary policy iii. Increased funding for national security in light of the heightened threat of terrorism iv. The delivery of a smaller budget deficit which is consistent with fiscal consolidation v. Subsidies for businesses that reduce carbon emissions vi. Tightening restrictions on the fisheries industry in an effort to preserve fishing stocks A. Combination (i), (iii), (v) and (vi) B. Combination (i), (ii), (iv) and (v) C. Combination (ii), (iii), (iv) and (v) D. Combination (i), (iv), (v) and (vi) Question 8 Which one of the following has not contributed to the slower growth in the Consumer Price Index (CPI) over recent years? A. An increase in global supply of crude oil B. The lower prices of some imports due to disinflation and deflation occurring in some countries C. The lower value of the Trade Weighted index since 2013 D. A lower terms of trade since 2011

4 4 Question 9 Which one of the following statements is least likely to reflect the information contained in the chart above? A. Debits exceeded credits in the current account over 2017 B. The prices of exports exceeded the prices of imports over 2017 C. There has been a surplus in the Capital and Financial Account over 2017 D. Payments of interest to overseas lenders has exceeded the receipt of interest from overseas borrowers since 2015 Question 10 Average price (litre) Alcohol $5.00 $7.50 Milk $1.50 $1.65 In the hypothetical example provided in the table above, the relative price of milk is expected to: A. decrease B. increase C. cannot be determined D. remain unchanged Question 11 Which of the following statements is incorrect in relation to the difference between a budget deficit and a current account deficit? A. A budget deficit is related to fiscal policy and a current account deficit is related to the balance of payments B. The government is keen to both return the current account deficit to surplus over the medium term and ensure that the budget deficit is sustainable C. A budget deficit will contribute to an increase in public sector debt while a current account deficit will contribute to an increase in foreign liabilities D. Australia s budget deficit is forecast to be eliminated in the medium term while the current account deficit is expected to remain for the long term

5 5 Question 12 If the current government was determined to achieve a balanced budget outcome every year, then A. Budgetary policy would be better able to achieve stabilisation of the level of economic activity B. The business (or economic) cycle would be characterised by smaller downturns (or troughs). C. It would contribute to capacity constraints and inflation during boom times D. Tax rates would need to rise during an economic recovery and government expenditure would need to fall Question 13 Which of the following is least likely to be considered an example of a microeconomic supply-side factor that influences the price and/or quantity of electric cars? A. The price of petrol powered cars B. The price of labour C. The price of machinery D. Technological change Question 14 Strong and sustainable economic growth is more likely to be achieved if A. There is an increase in the rate of depletion of natural resources, the annual inflation rate exceeds 5% and the unemployment rate is 3%. B. The current account deficit is approximately 50% of GDP, the annual inflation rate exceeds 10% and the unemployment rate is 5%. C. The rate of growth in real GDP is 3.5%, the unemployment rate is 5% and there is a decrease in the rate of depletion of natural resources. D. The rate of growth in real GDP is 1%, the current account deficit is approximately 4% of GDP and the rate of inflation is between 2-3%. Question 15 The difference between nominal and real wages primarily depends on A. The rate of personal income taxes B. The rate of growth in the average prices of goods and services C. Changes in the exchange rate D. The level of non-monetary benefits received by workers

6 6 SECTION B Written responses Instructions for Section B Answer all questions in pen in the spaces provided. Question 1 (20 marks) The Reserve Bank of Australia s (RBA) monetary policy settings have been instrumental in achieving low inflation and relatively strong rates of economic growth over recent years. a. Describe the trend in the target cash rate since the start of 2016 and outline the change in monetary policy setting over this time. 4 marks

7 7 b. Describe what is meant by low inflation in the context of monetary policy. 3 marks. c. Describe how the RBA reduced the cash rate in August marks

8 8 d. In terms of the way a loosening of monetary policy impacts on aggregate demand, explain the difference between the cash flow transmission mechanism/channel and the cost of credit (savings and investment) transmission mechanism/channel. 4 marks

9 9 e. Outline how lower interest rates can stimulate aggregate demand via the exchange rate mechanism/channel. 2 marks f. Explain how less competitive markets are likely to impact on prices and efficiency. In your response, make reference to two different types of efficiency. 5 marks

10 10 Question 2 (22 marks) Since the fall in the terms of trade from its peak in 2011, the economy has been supported by lower interest rates and the depreciation of the AUD, which have been instrumental in rebalancing the economy towards non-mining sectors. a. Define the terms of trade (TOT). 2 marks b. Outline why the lower terms of trade contributes to a lower exchange rate. 2 marks

11 11 c. Explain why the fall in the TOT impacts negatively on aggregate demand (AD) and the current account deficit. 4 marks

12 12 d. Outline how a subsidy for exporters can have a positive impact on the Balance on Merchandise Trade (BOMT). 4 marks

13 13 e. Explain why a lower terms of trade has contributed to a more expansionary monetary policy stance over recent years. 3 marks f. Explain how non-mining businesses have been supported by lower interest rates. 2 marks

14 14 g. Explain the role of the price mechanism in reallocating resources away from the mining sector over the past four years. In your answer, refer to relative prices. 3 marks h. Explain how low(er) crude oil prices may have impacted on economic growth over the past two years. 2 marks

15 15 Question 3 (23 marks) Assume that the Australian economy in the future had the set of statistics as outlined in Table 1 below. Table 1 Annual % change in real GDP Annual % change in real GNE Annual % change in the CPI Budget outcome (% of GDP) Unemployment rate (%) % % % a. Over the period , describe one indicator from the table that suggests pressure on foreign debt might increase and another indicator from the table that suggests pressure on foreign debt might decrease. Use the statistics from the table to support your response. 4 marks

16 16 b. Outline how discretionary stabilisers within the budget might contribute to the change in the budget outcome between 2019 and Use the statistics from Table 1 to support your response. 4 marks c. Outline the theoretical relationship between economic growth and the rate of unemployment. 3 marks

17 17 d. Provide a possible explanation for the relationship between economic growth and the rate of unemployment as shown in Table 1. Refer to the statistics in the table to support your response. 3 marks

18 18 e. Explain how reforming the welfare system by introducing more means testing of government payments can impact on living standards. 3 marks f. Discuss how trade liberalisation can impact on international competitiveness and the achievement of full employment. 6 marks

19 19 END OF QUESTION AND ANSWER BOOK

20 20 Extra space for responses Clearly number all responses in this space

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22 22 COMMERCE PRESENTATIONS AND PUBLICATIONS VCE ECONOMICS 3/ Practice Examination No. 4 Multiple choice answer sheet Student Name Answer the 15 questions by shading only one box (either A, B, C, or D) in each of the 15 rows below: 1 A B C D 2 A B C D 3 A B C D 4 A B C D 5 A B C D 6 A B C D 7 A B C D 8 A B C D 9 A B C D 10 A B C D 11 A B C D 12 A B C D 13 A B C D 14 A B C D 15 A B C D