HSC Economics Question Thread

[hermansia12]

How many bilateral and multilateral trade agreements do we need to know? 1 each?

Hey,

One each would be the minimum. I would know 2 just in case. Its usually a 4-6 marker question they ask with regards to free trade agreements.

[hermansia12]

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

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

Good work isaacdelatorre!  I had the same answers to those multiple choice too.

The only question that I had a different answer to was 14, I got B. The unemployment rate is lower as a result of a decrease in participation rate, rather than more people getting hired (which would increase participation rate). This is actually happening currently in the Australian Economy (I summarised a recent news article on it in the minute statistics thread just now actually). It means that there are more people leaving the work force which leads to increased rates of hidden unemployment, people unable to find a suitable job giving up. This means that the economy not utilizing its labour resources and a cause of this could be that businesses are unwilling to hire long term unemployed. So to fix this, governments could invest in re-training programs to re-train workers into streams with structural unemployment so that we are utilising the workforce more efficiently.   

[onepunchboy]

anyone know how to do this q ? thanks !!

[isaacdelatorre]

anyone know how to do this q ? thanks !!

Hi there,
I think that the answer is A as inflation makes the general level of prices go up. Thus assets like cars, houses, shares or material possessions suddenly have an increased net worth and can sell their assets for higher prices.
Whereas those on fixed incomes or pensions are worse off as inflation erodes real incomes since they cannot buy as many goods and services, thus their living standards decrease.

Hope this helps - hopefully hermansia can give her insight though

[onepunchboy]

yea it is A ) thanks that helped, also for this Q i picked A because i thought when the currency is appreciating it means that foreign investors are investing in australia thus there wud be net foreign liabilities would increase as australia would need to pay back foreign countries through interest. The ANS is B and not quite sure why.. anyone help clarify? THANKS

[hermansia12]

yea it is A ) thanks that helped, also for this Q i picked A because i thought when the currency is appreciating it means that foreign investors are investing in australia thus there wud be net foreign liabilities would increase as australia would need to pay back foreign countries through interest. The ANS is B and not quite sure why.. anyone help clarify? THANKS

Hi onepunchboy,

So you're right in the first aspect, that it is in a current account deficit as there is more foreign investment therefore increased foreign liabilities. As the currency depreciates, the economy's level of debt increases because our currency is worth less compared to foreign currencies. Increased level of foreign debt, increases our liabilities. Yes, foreign investors are more likely to invest if the currency is appreciating in order to capitalize on gains, but that amount is significantly small compared to the potential increase of debt if the currency depreciates.

Hope this helps

[hermansia12]

Hi there,
I think that the answer is A as inflation makes the general level of prices go up. Thus assets like cars, houses, shares or material possessions suddenly have an increased net worth and can sell their assets for higher prices.
Whereas those on fixed incomes or pensions are worse off as inflation erodes real incomes since they cannot buy as many goods and services, thus their living standards decrease.

Hope this helps - hopefully hermansia can give her insight though

That's a perfect answer isaacdelatorre

[Deng]

Would it be likely that our case study will be in the short answers again since it was in the 2015 ?

[kevin217]

Would it be likely that our case study will be in the short answers again since it was in the 2015 ?

Well predictions are that the case study will be an extended response this year.

[onepunchboy]

Anyone explain this Q please? thank you so much ))

[Deng]

Anyone explain this Q please? thank you so much ))

By inspecting the graph, the dollar has appreciated so the factors causing an appreciation can include increased investment into Australia. By increasing investment, investors have to convert their dollars into AUD which reduces the supply of the Australian dollar putting upward pressure on the currency causing an appreciation.

So, i believe the answer is B ( i could be wrong )

[hermansia12]

Anyone explain this Q please? thank you so much ))

I think the answer is B -

Supply of the $AU has decreased, causing the $AU to appreciate. So which one would cause the supply of the $AU to decrease? There must be more foreign investment, foreign economies buying Australian currency (foreign currency exchanged into $AU). This causes less supply of $AU in the global market.
The other options are more likely to increase the supply of $AU in the global market as $AU is exchanged for foreign currency.
 
Hope this helps

[onepunchboy]

I thought the ans was b as well, but it is actually c , not sure why tho...

[kevin217]

Anyone explain this Q please? thank you so much ))

TBH, B doesn't really pop up as the answer for me. Yes increased investment into Australia causes an appreciation of the AUD. But this is because there is increased demand not through reduced supply. My thinking as to why the answer is C is because there is a deficit in the income component on the current account ie income debits > income credits. This means that more AUD is supplied by Australians in the foreign exchange market so they can obtain foreign currencies and pay off foreign loans or investments. A reduction in this income deficit would mean that there is less income debits and thus less AUD being supplied in the market.

[Deng]

I guess a reduction in the net income deficit means a reduction in the CAD. If our CAD is lower, it increases investor confidence as it is more sustainable, which i guess leads to investment so its the better answer out of B and C ( my two cents )