HSC Economics Question Thread

[julzzz]

I am just a bit confused on this question: Distinguish between a fixed and a managed exchange rate.

Is "managed" referring to the flexible peg, or how the RBA manages the AUD by dirtying the float?

Thanks

[Natasha.97]

I am just a bit confused on this question: Distinguish between a fixed and a managed exchange rate.

Is "managed" referring to the flexible peg, or how the RBA manages the AUD by dirtying the float?

Thanks

Hi!

Fixed exchange rate: A system where the value of the currency is set and converted by the government or the central bank (RBA).To intervene in the Forex market, the government would require reserves of foreign currency/gold. Example: China (before 2005)

Managed exchanged rate: A system that exhibits both a flexible and fixed rate (currency is allowed to fluctuate within a centrally determined band). The value can change as a result of the demand and supply for AUD, but a central authority determines the upper and lower limits within which it can fluctuate.

Hope this helps

[Shlomo314]

Hi,

Could someone help me with this essay question please? "Assess the effectiveness of domestic and global policy to achieve environmental sustainability"
Could you go through what I should write for each paragraphs please?

Thankyou

[Natasha.97]

Hi,

Could someone help me with this essay question please? "Assess the effectiveness of domestic and global policy to achieve environmental sustainability"
Could you go through what I should write for each paragraphs please?

Thankyou

Hi Shlomo314! Here are a few suggestions:

Introduction:
- Definition of environmental sustainability, domestic policy (i.e. market-based policy) and global policy (i.e. international agreements)
- Thesis: what your argument is in relation to the question (e.g. policies were ineffective/effective)
- Briefly outline what you will be saying in the body paragraphs

Domestic Policy:
- Product Stewardship for Oil Program: 8.5% levy on new oil (helps to fund the recycling of old oil)
- Solar Towns Programme: $2.1million (2014-15) to subsidise installation of renewable energy systems

Global Policy:
- Stockholm Convention (2004): Protection of human health and environment from organic pollutants
- Montreal Protocol (1997): Phase out production of ozone-depleting products
- Kyoto Protocol (2008): Reduce greenhouse gas emissions

Conclusion: Overall judgement e.g. were both types of policies effective, or one type was but the other wasn’t.

Hope this helps

[Claudiaa]

When the RBA sells/buys second hand government securities, what effect will it have on the supply of money and hence the cash rate?

[Natasha.97]

When the RBA sells/buys second hand government securities, what effect will it have on the supply of money and hence the cash rate?

Hi!

Selling second-hand government securities (Commonwealth Government Securities/CGS) (Contractionary Monetary Policy)
Aim: Slow down economic activity + reduce inflationary pressure
   - RBA sells CGS (receives money from Exchange Settlement Accounts/ESA)
   - Decrease of borrowable funds in Short Term Money Market (STMM)
   - Upwards pressure on cash rate
   - Upward pressure on market interest rates (banks want to maintain profit margins)
   - Investment and Consumption decreases (more expensive to repay loans)
   - Level of economic activity decreases

Buying second-hand government securities (Expansionary Monetary Policy)
Aim: Stimulate economic activity and reduce the rate of unemployment (periods of low growth)
   - RBA purchases CGS (deposits money into ESA)
   - Increase of borrowable funds in STMM
   - Downwards pressure on cash rate
   - Downward pressure on market interest rates
   - Investment and Consumption increases
   - Level of economic activity increases


Hope this helps!

[chloe9756]

Could you please explain the answers for these multiple choice questions?
Which of the following is the best measure of external stability?
A)   CAD
B)   Net foreign debt as a % of GDP
C)   Net public debt as a % of GDP
D)   Net foreign liabilities
Answer: B (I don't understand why A and D are incorrect)

What is the most sustainable economic argument for implementing artificial barriers to trade?
A)   To protect domestic employment
B)   To raise government revenue
C)   To discourage dumping
D)   To achieve self-sufficiency
Answer: C

Which of the following is most likely to add to Australia’s Capital and Financial Account surplus?
A)   An increase in royalties paid to Australia
B)   An increase in Australia’s foreign aid program for international emergencies
C)   An increase in loans borrowed by Australian banks from foreign lenders
D)   An increase in money transferred to relatives overseas by migrants to Australia
Answer: C (Why is A incorrect?)

Which of the following policy changes would likely improve the allocative efficiency of an economy?
A)   Decrease in the tax-free threshold
B)   A decrease in agricultural subsidies
C)   An increase in the minimum wage for hospitality workers
D)   A decrease in the size of an import quota on a consumer good
Answer: B (Why is C incorrect)

[Natasha.97]

What is the most sustainable economic argument for implementing artificial barriers to trade?
A)   To protect domestic employment
B)   To raise government revenue
C)   To discourage dumping
D)   To achieve self-sufficiency
Answer: C

Hi!
Not A
- This argument ignores the idea of comparative advantage (The economic principle that nations should specialise in the areas of production which they have the lowest opportunity costs and trade with other nations so as to maximise both nations’ standard of living)
- Short term effects of removing the barriers to trade: Unemployment in inefficient and uncompetitive industries, which leads to domestic (structural) unemployment
- Long term: Structural change results in the reallocation of workers/resources into more productive sectors of the economy

Not sure about the counter-argument for B or D

C
- Sales of the domestic equivalent of the import that is being "dumped" will drop (the import is cheaper than the market price)
- Domestic industry will either decline or be wiped out (cannot compete against the cheap imports)
- Some companies use this strategy to gain market share
- Only reason that the World Trade Organisation accepts for protection

Hope this helps

[bundahboy]

Could you please explain the answers for these multiple choice questions?
Which of the following is the best measure of external stability?
A)   CAD
B)   Net foreign debt as a % of GDP
C)   Net public debt as a % of GDP
D)   Net foreign liabilities
Answer: B (I don't understand why A and D are incorrect)

Which of the following is most likely to add to Australia’s Capital and Financial Account surplus?
A)   An increase in royalties paid to Australia
B)   An increase in Australia’s foreign aid program for international emergencies
C)   An increase in loans borrowed by Australian banks from foreign lenders
D)   An increase in money transferred to relatives overseas by migrants to Australia
Answer: C (Why is A incorrect?)

Which of the following policy changes would likely improve the allocative efficiency of an economy?
A)   Decrease in the tax-free threshold
B)   A decrease in agricultural subsidies
C)   An increase in the minimum wage for hospitality workers
D)   A decrease in the size of an import quota on a consumer good
Answer: B (Why is C incorrect)

For the external stability question, B is a better answer than D because net foreign debt excludes foreign equity in its measurement. Equity is less of a problem for external stability as it only attracts a return when businesses are profitable and the economy is doing well. Debt on the other hand requires interest to be paid regardless of a firm's profitability, presenting the risk of default. Not sure about why D would be more correct than A though.

For the KAFA question, both A and C contribute positively to the capital and financial account. However, the amount of money that comes in through foreign loans dwarfs the amount that arrives in the form of royalty payments. Thus, C is the more correct answer.

For the microeconomic reform Q, C cannot be correct as an increase in the minimum wage reduces the labour market's ability to independently determine wage outcomes. This can create inefficiencies, such as when a firm that is willing to hire workers at below the minimum wage is unable to do so. This generates unemployment amongst workers and limits the productive capacity of the firm, reducing aggregate supply and hence allocative efficiency.

[angelahchan]

hi
I was wondering which graphs would you guys recommend memorizing for the extended response?  obviously different questions are suited to different graphs, but which types of graphs would be applicable for most responses and actually add marks to your response?

[Mathew587]

hi
I was wondering which graphs would you guys recommend memorizing for the extended response?  obviously different questions are suited to different graphs, but which types of graphs would be applicable for most responses and actually add marks to your response?

No graph as far as I know adds marks without appropriate justiification.
Remmeber all thats in the textbook and thats all you need i.e. AD/AS/ CAD/BOP equations, economic cycles, lorenz curves, philips curve...

[Claudiaa]

I'm doing my Prelim Eco exam tomorrow and I have 2 extended response questions...

I was wondering how could I prepare for an extended? And could someone possibility give my tips to writing an Eco extended repsonse under timed exam conditions and what is required?

[Natasha.97]

I'm doing my Prelim Eco exam tomorrow and I have 2 extended response questions...

I was wondering how could I prepare for an extended? And could someone possibility give my tips to writing an Eco extended repsonse under timed exam conditions and what is required?

Hi!

I would do dot-point plans for 2-3 possible essay questions (Syllabus: "Examine Economic Issues"), and write out 1 in actual exam conditions (40 minutes, no notes etc.)

In reading time, I would look at both questions and try to come up with ideas on what to write, and as soon as reading time is over, jot down those ideas and make a proper plan for each essay (2 minutes each)

In terms of what to include, definitions of the key terms in the question, relevant graphs (most things could be linked back to the demand/supply graph if you're stuck) and an explanation of the graph and how it links to the question.

Hope this helps, all the best in your exam tomorrow 

[angelahchan]

Hi,
I'm always confused about conditional vs. non conditional foreign aid and where it's recorded in the balance of payments; I think conditional is in capital whereas non conditional is in net secondary, but in a question how do I tell whether the aid is conditional or not? e.g. a multichoice  I'm doing rn is "Australia provides foreign aid to build schools in a developing country. This will be entered in Australia's BOP as a: (the correct answer is debit in capial).

[Natasha.97]

Hi,
I'm always confused about conditional vs. non conditional foreign aid and where it's recorded in the balance of payments; I think conditional is in capital whereas non conditional is in net secondary, but in a question how do I tell whether the aid is conditional or not? e.g. a multichoice  I'm doing rn is "Australia provides foreign aid to build schools in a developing country. This will be entered in Australia's BOP as a: (the correct answer is debit in capial).

Hi!

Conditional foreign aid is given with instructions on how to use said foreign aid in a country. In the example, the aid is given to "build schools", so this would be an example of conditional foreign aid.

Hope this helps