2015 ECONOMICS ATTACH SACE REGISTRATION NUMBER LABEL TO THIS BOX

Transcription

1 External Examination ECONOMICS FOR OFFICE USE ONLY SUPERVISOR CHECK ATTACH SACE REGISTRATION NUMBER LABEL TO THIS BOX RE-MARKED Thursday 12 November: 1.30 p.m. Time: 2 hours Examination material: one 11-page question booklet one 8-page script book one SACE registration number label Approved dictionaries may be used. Pages: 11 Questions: 6 Instructions to Students 1. You will have 10 minutes to read the paper. You must not write in your question booklet or script book during this reading time but you may make notes on the scribbling paper provided. 2. This paper is in two parts: Part A (Questions 1 to 3) Answer all parts of Questions 1 to 3 in the spaces provided in this question booklet. Part B (Questions 4 to 6) Answer one essay question from this part. Write your answer in the separate script book. 3. The allocation of marks is as follows: Part A 45 marks Part B 20 marks Total 65 marks 4. Attach your SACE registration number label to the box at the top of this page. Copy the information from your SACE registration number label into the box on the front cover of your script book. 5. At the end of the examination, place your script book inside the back cover of this question booklet. SACE Board of South Australia 2015

2 PART A (Questions 1 to 3) (45 marks) Answer all parts of Questions 1 to 3. Write your answers in the spaces provided for each question. The allocation of marks is shown in brackets at the end of each part of each question. 1. Refer to the following information. Country A has substantial reserves of natural resources. It has experienced strong economic growth in the last decade, mainly due to a large export boom in the mining industry. This has resulted in increased consumer spending domestically, as well as significantly increased investment in infrastructure such as ports, roads, and power. (a) Name the category of resource to which natural resources belongs. (b) (i) Define the term economic growth. (ii) Describe one way of measuring economic growth. (2 marks) page 2 of 11

3 (c) Which one of the following diagrams represents the impact that increased exports and increased consumer spending will have on the economy of Country A? Tick the appropriate box. Consumer goods A B Consumer goods A B Capital goods Capital goods Consumer goods Consumer goods Capital goods Capital goods (1 mark) page 3 of 11 PLEASE TURN OVER

4 (d) Explain the impact of increased investment in infrastructure on the economy of Country A. Complete the aggregate demand aggregate supply diagram to support your answer. Price level Real GDP (3 marks) (e) Economic growth has both benefits and costs. Discuss this statement. (4 marks) page 4 of 11

5 2. Refer to the following information. Chocolate Crisis Expected If chocolate is your favourite treat, enjoy every bite while you can. The world s four major chocolate producers predict an annual shortage of 1 million tonnes of cocoa beans for at least the next 5 years. Cocoa beans are the main ingredient used to make chocolate. Problems with disease and drought over the last decade have forced many cocoa bean farmers to grow other crops, such as corn, that are more resistant to disease and drought. At the same time, the market for chocolate in Asia which has only just emerged is growing at an ever increasing rate. (a) Using information from the article above, show on each diagram the effect of changes in the market conditions for chocolate. (i) Supply of chocolate: P S Market for chocolate Q (1 mark) (ii) Demand for chocolate: P D Market for chocolate Q (1 mark) page 5 of 11 PLEASE TURN OVER

6 (b) It is difficult to predict the overall effect of changes in market conditions on the equilibrium price and quantity traded of chocolate. Evaluate this statement and complete the demand and supply diagram to support your answer. P Market for chocolate Q (3 marks) (c) Refer to the following additional information about the chocolate crisis. Over the past year, governments have introduced reforms to keep the many small-scale cocoa bean farmers in the industry including a subsidy for new cocoa bean plantings. While these reforms have led to more cocoa bean plantations, it will be some time before the cocoa beans are ready for use. (i) Define the term subsidy. (ii) Show on the diagram below the impact of a subsidy on the market for cocoa beans. Indicate the effect on the equilibrium price and quantity traded. P S D Q Market for cocoa beans (1 mark) page 6 of 11

7 (iii) Explain your answer to part (c)(ii). (d) (i) State the likely price elasticity of the supply of cocoa beans. (ii) Justify your answer to part (d)(i). (e) The market structures for cocoa bean farmers and chocolate producers are different and each market structure has a different impact on consumers and producers. Evaluate this statement. (5 marks) page 7 of 11 PLEASE TURN OVER

8 3. Refer to the following information. Country B is an open market economy with a floating exchange rate. Recent economic indicators for Country B are shown below Consumer price index (annual % change) Unemployment rate (October) GDP* (annual % change) Cash rate (October) Exchange rate ($US) Current account deficit (% GDP) *Gross domestic product In their October 2015 monetary statement, the Central Bank left the cash rate unchanged at 3%. The Central Bank pointed to improved leading indicator data and the movement in Country B s exchange rate as justification for this decision. A spokesperson for the Central Bank stated that changes in the cash rate since October 2014 were, to some extent, responsible for the movement in Country B s exchange rate. The spokesperson also argued that: The movement in Country B s exchange rate from 2014 to 2015 will have significant benefits and minimal costs for Country B. (a) (i) Name one lagging indicator in the table above. (ii) Justify your response to part (a)(i). (iii) Describe how a government can use lagging indicators to better manage an economy. (b) Which one of the following is not a leading indicator? Tick the appropriate box. Dwelling approvals Retail sales Factory overtime hours Business confidence (1 mark) page 8 of 11

9 (c) Using economic indicator data from the table on page 8, explain the likely phase of the business cycle for Country B. (2 marks) (d) (i) Identify one type of unemployment that is likely to have increased from 2014 to (ii) Justify your response to part (d)(i). (e) Briefly outline the meaning of the term floating exchange rate. (f ) (i) State the term used to describe the movement of Country B s exchange rate from 2014 to (ii) Outline how the change in Country B s cash rate since 2014 could explain the movement in Country B s exchange rate. Complete the demand and supply diagram below to support your answer. P Q (3 marks) page 9 of 11 PLEASE TURN OVER

10 (g) The movement in Country B s exchange rate from 2014 to 2015 will have significant benefits and minimal costs for Country B. Evaluate the Central Bank spokesperson s statement. (5 marks) page 10 of 11

11 PART B (Questions 4 to 6) (20 marks) Answer one essay question from Questions 4 to 6. Whenever appropriate, you should supplement your answers with suitable diagrams. Write your answer in the separate script book provided. Write the number of the question you choose in the appropriate box on the front cover of the script book. 4. The causes of unemployment and inflation are different and therefore require different policy solutions. Evaluate this statement with reference to examples. (20 marks) 5. Monetary policy is the most effective policy option for an economy experiencing slow growth, rising unemployment, and stable prices. Evaluate this statement with reference to examples. (20 marks) 6. The growth in capital mobility and free trade agreements has more benefits than costs to an internal economy. Evaluate this statement with reference to examples. (20 marks) page 11 of 11 end of question booklet

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