Hey guys, just some multiple choice which i dont particulary understand and would like some clarification
Also the tariff question in the 2011 hsc multiple choice, my laptop cant pull up the paper for some reason, hopefully theres only one, its something about changing the price of the tariff and revenue
Thanks
Hey Deng,
Here's what I think the answers should be, I might be wrong though so hopefully someone else can shed some light.
18. Growth rate of real GDP in Year 2 - A
For this question you have to calculate real GDP growth for year 1 and 2.
To do this you calculate AD by adding up C + I + G + (X-M) then you times this figure by 100/CPI in order to get the Real GDP for that year then using (Current-Previous)/Previous x 100 you can find the growth rate
Year 1:
Real GDP = (500 + 200 + 300 + 100 - 100) x 100/CPI
= 1000 x 100/100
= 1000
Year 2:
Real GDP = (550 + 250 + 300 + 200 - 200) x 100/CPI
= 1100 x 100/110
= 1000
Therefore Real GDP growth is 0%
7. Best policy response - D
From the table we can see that GDP growth has increased by 0.5%, inflation has increased by 1.1% and unemployment has decreased by 0.5% - through short run Philips curve, we know that economic activity is high and is reaching full capacity, so contractionary measures are necessary
The question also tells us that the inflation target is 2-3%, since the economy's inflation rate is .8% above the target; it must tighten economic activity in order to dampen spending and reduce inflation - this can be achieved through contractionary fiscal and contractionary monetary policy
14. Account for changes - D (not sure about this one)
For these types of questions, I suggest looking only at half and then narrowing your choices.
So looking at the first column "Reason for change in unemployment rate" we can see that the unemployment rate has decreased.
A is wrong as a global recession would increase unemployment since labour is a derived demand
B is wrong as fewer incentives to hire the l/t unemployed would result in an increase in unemployment since there is no reason to hire
Looking at the second column - the participation rate has decreased showing that either the labour force has decreased and/or the working population age has increased as participation rate = labour force/working age pop.
C is wrong as an increase in childcare subsidy payments would encourage stay at home mothers/fathers to rejoin the labour force thus increasing the participation rate
D is the right answer (I think) as an increase in consumer confidence would increase Consumption and AD thus increasing the demand for labour and decreasing unemployment. Increasing school retention rates would mean that there would be more students and less people dropping out and joining the workforce in the short/term. As students are not counted in the labour force the size of the labour force decreases whilst the working age population is the same.
17 - Monetary Policy - C
When the RBA purchases Commonwealth Government Securities they are increasing the supply of money in the overnight money market and effectively decreasing the cash rate of which banks should decrease interest rates (eventually). Through loosening monetary policy, Australian GDP rises as it is cheaper to borrow money and thus consumption and investment should increase.
On the other hand, a lower interest rate would deter overseas investors from putting their funds into Australian banks as there is a lower rate of return thus decreasing the demand for the Australia and causing a depreciation. Further increasing consumption and availability of credit could increase Import spending, increasing the supply of AUD on the FX market and causing a depreciation.
Hope this helps, not sure if these are right so hopefully someone else can give their view