2016 Economics Exam Questions Thread

[abcdqdxD]

Hi everyone,

With the Economics exam just around the corner, let's gather all our last minute exam questions in this thread.

I'll try to get back to your questions within 1-2 days.

Fire away!

[100.00]

Hi there!
I have a request if you will, to read and critique my 8 mark policy mix question from the  2010 VCAA exam.
This is a question you can somewhat forge for the eco exam other than the mix of goals  goals they give you, So I want to know if I had left anything out for this answer.

Question: Examine the relationship that has existed between Budgetary policy and Monetary policy in Australia over the past two years, and its effect on the achievement of the economic goals of low inflation and strong and sustainable growth. (8 marks)

Answer: The goal of strong and sustainable growth is the highest level of real GDP elevation (3.5-4%) with minimal unfavourable costs on the environment, inflation or external sector. Low inflation refers to inflation growth being on average within the RBA's goal of 2-3% over the course of the economic cycle.
Budgetary policy is the fed governments manipulation of receipts and outlays to achieve its economic/social goals for Australia. The projected budget deficit in 2016-17 is overall, mildly contractionary, with a projected decrease in deficit from $39.9 billion to $37.1 billion at the end of the financial year. This should decrease injections relative to leakages in the economy and undermine the achievement of strong economic growth. However, it may be more sustainable in the sense that the environment will not be as heavily impacted. (Although also unsustainable as our inflation rate will trail even lower than it is (1%), perhaps to deflation). {This has actively seen the government attempting to implement fiscal consolidation and return the budget to surplus in the medium term}.
however, through various discretionary measures, budgetary policy has still being injecting stimulus and promoting the achievements of these goals. For example, the reduction in corporate tax rate to 27.5% for company's with less than $10million turnover has effectively increased aggregate supply  and encouraged firms to increase their productive capacity. This has increased Aggregate demand directly through private investment, increased our resource utilisation capabilities, shifted the ppf curve to the right  and promoted non-inflationary growth.

Monetary policy involves the RBA's cash rate manipulation by intervening in the short term money market to increase/decrease liquidity. Monetary policy has been at record breaking stimulative stances, facilitating a record low cash rate of 1.75% in may 2016, before being lowered to 1.5% at the start of August. As inflation is under control, The RBA have actively been using monetary policy to pursue other goals well within its charter (Jobs and growth)Through various transmission mechanisms (lower cost of credit and increased cash flows), firms and households have actively been taking these lower rates and investing in themselves and their businesses. This has actively increased AD through consumption (C) and investment (I), which has helped once again increase employment, productive capacity and the ability to have non inflationary growth.

Thereby, although at face value budgetary policy and monetary policy seem to be contractionary, the specific discretionary budgetary policy's signify their complementary expansionary stance, helping to both achieve, through their individual methods, the goals of strong and sustainable growth and low inflation.

[100.00]

Correction for the conclusion:
*monetary policy and budgetary policy seem to be conflicting*

lol

[abcdqdxD]

100.00:

Your response was really detailed and quite well structured. I would probably give it a 6/8 which is well above average.

Some things you could do to make your answer even stronger:
- discuss inflation in more depth as a standalone topic from economic growth
- discuss 2 budgetary policies in depth
- discuss 2 transmission mechanisms in depth

In other words, for an 8 mark question, structure is everything. If you nail the structure, the marks will follow.

[laksjdlakj]

Hi,
I was wondering how would you link slower wage growth to the goal of low inflation/SSEG?
-would you say that slower wage growth means that firms cost of production is not rising as fast and hence may lead to lower cost push inflation
-pr could you say that slower wage growth means that wages in Aus are growing at a slower rate compared to other countries thus improving international price competitiveness and boosting exports

Thanks in advance

[abcdqdxD]

Hi,
I was wondering how would you link slower wage growth to the goal of low inflation/SSEG?
-would you say that slower wage growth means that firms cost of production is not rising as fast and hence may lead to lower cost push inflation
-pr could you say that slower wage growth means that wages in Aus are growing at a slower rate compared to other countries thus improving international price competitiveness and boosting exports

Thanks in advance

Yep both of them work fine on the supply side.

On the demand side, you could argue: demand factor -> slower growth in AD (hence slower GDP growth) -> slow growth in labour demand -> slow wage growth (slower increase in inflation)

[P.GUAN]

Hi,
I have been averaging around Cs throughout the whole year, what do I need to get for the final exam to get a study score out of 30?

Thanks!

[dave101]

Hey guys,

How are you all feeling for the eco exam on Thursday? I'm feeling fucked right now despite having done all the vcaa eco exams since 2007 till 2015 and stuck on 74%-78% range. I'm really struggling to improve at the moment. I'm always consistently getting 2-3 multi choice answers wrong and I've done over 600 of them haha fml. For section B, my answers are always different to the examiner's solutions, like there's always certain key phrases that I never seem to use no matter how hard I think about the question, or ideas which I use are different according to the examiner's report. My sac marks have been poor and my rank is pretty bad. I'd die for a 35 raw hahah. I hope i'm not alone 

[100.00]

Hey guys,

How are you all feeling for the eco exam on Thursday? I'm feeling fucked right now despite having done all the vcaa eco exams since 2007 till 2015 and stuck on 74%-78% range. I'm really struggling to improve at the moment. I'm always consistently getting 2-3 multi choice answers wrong and I've done over 600 of them haha fml. For section B, my answers are always different to the examiner's solutions, like there's always certain key phrases that I never seem to use no matter how hard I think about the question, or ideas which I use are different according to the examiner's report. My sac marks have been poor and my rank is pretty bad. I'd die for a 35 raw hahah. I hope i'm not alone 

Hi, I was in the same boat as you. No matter how many multiple choice questions and short answer questions I did, I always managed to get at least 2 wrong on the multiple choice and lose 1 here and there on short answer. That is, until I stopped cramming in exams and thoroughly revised the content. I have gotten 14/15+ every exam Ive done since then.  Remember, economics is very volatile in terms of questions. The 2015 VCAA economics exam may be completely different than this years - especially in the short answer where they tend to be very creative. My point is the amount of exams you do doesn't define your economic knowledge. If you do an exam that has 30 short answer marks allocated to domestic stablity and one 4 marker on microeconomics, what good will that do you if the next exam has 20 marks worth of microeconomics. My advice and take it as you will, is to lay off the exams between now and Thursday if you are still doing some and focus on reading over everything - particularly those key terms you keep on forgetting to include in your answers. - I have found this to be most effective.  Good luck friend!
Remember a 78% will land you something like a 33, so keep in mind you are extremely close, so dont stress and you will get that 35 no problem!

[100.00]

Hi,
I have been averaging around Cs throughout the whole year, what do I need to get for the final exam to get a study score out of 30?

Thanks!

The C+ on the exam in the past few years has been around a 63-72%, meaning if you get between this range and of course taking in SACS and the level of your C+, you will get somewhere between 28-32.

[syubi]

Using an example, explain why the existence of asymmetric information can lead to an inefficient allocation of resources. (4 mk)
This was in one of the CPAP exams and the written response part with the example was that businesses possess more info than consumer, able to make false claims, and consumers buy it which leads to an over-allocation of resources. And if consumers are more cautious about this, it leads to an under allocation of resources because of less investment in the product. Does this refer to allocative inefficiency? Since I had always just linked over/under allocation of resources to negative/positive externalities, not asymmetric information.

My response was:
Asymmetric information is a type of market failure (where an unregulated freely operation market fails to allocate resources efficiently to satisfy society), that occurs when party holds more information than the other relevant to the transaction or exchange. For example, in an employment contract, asymmetric information can occur in the event that the employee knows more information about their work effort and productiveness than their employer. This represents a situation of moral hazard where the employee may work far less productively as they may not be directly observed, which is viewed as a less efficient or favourable action from society's point of view. Technical inefficiency would then occur where the maximum volume of goods and services is not produced as employees may be working with less effort and at a lower productivity, which means society's satisfaction and wellbeing is not met and market failure occurs.

Would this be enough for a 4 mark question?

[syubi]

Also, I have another question.  How is the current account balance as a percentage of GDP calculated? I know it's in the negatives because of the current account deficit but I'm just confused, I can't picture it in my head haha.

[100.00]

Using an example, explain why the existence of asymmetric information can lead to an inefficient allocation of resources. (4 mk)
This was in one of the CPAP exams and the written response part with the example was that businesses possess more info than consumer, able to make false claims, and consumers buy it which leads to an over-allocation of resources. And if consumers are more cautious about this, it leads to an under allocation of resources because of less investment in the product. Does this refer to allocative inefficiency? Since I had always just linked over/under allocation of resources to negative/positive externalities, not asymmetric information.

My response was:
Asymmetric information is a type of market failure (where an unregulated freely operation market fails to allocate resources efficiently to satisfy society), that occurs when party holds more information than the other relevant to the transaction or exchange. For example, in an employment contract, asymmetric information can occur in the event that the employee knows more information about their work effort and productiveness than their employer. This represents a situation of moral hazard where the employee may work far less productively as they may not be directly observed, which is viewed as a less efficient or favourable action from society's point of view. Technical inefficiency would then occur where the maximum volume of goods and services is not produced as employees may be working with less effort and at a lower productivity, which means society's satisfaction and wellbeing is not met and market failure occurs.

Would this be enough for a 4 mark question?

Hello, I would give it around a 2-3/4
the response was overall good. Your example was slightly vague, say why they cannot be assessed (e.g. difficult to monitor individual efforts in for example, construction sites where there are many workers) I would still stay clear of this example.
Also state what moral hazard is (employer will incur the cost of less productive employees)
 
Although, you could state that not divulging all aspects of the workers characteristics in the contract, for example, perhaps they have a permanent broken finger that limits their ability to carry things in the quickest possible time. This would represent adverse selection as the employer would be at a disadvantage by allocating his available wages to an unproductive worker, thereby not maximising the businesses needs and wants (allocative efficiency), whilst also hindering technical efficiency due to less output produced per input of labour working hours for that particular employee.

Also ensure you say why it leads to a less favourable action from societies point of view (perhaps due to less efficient construction workers extending the time it takes to build a house and minimising the achievement of the landlords want of having it completed on time)

Hope i helped 

[hermansia12]

Also, I have another question.  How is the current account balance as a percentage of GDP calculated? I know it's in the negatives because of the current account deficit but I'm just confused, I can't picture it in my head haha.

Hey There

So current account (CA) is given by the following equation:

CA = Balance of Good and Services + Net Primary Income + Net Secondary Income

A credit is positive -> Money flowing into economy for it to use (Injection)
A debit is negative -> Money has to leave the economy (Leakage)

When this is added up, if Debit > Credit then it will be a negative value therefore a deficit.

Then put the CA total over the GDP multiply it by 100. This will give the percentage of CAD against GDP.

Hope this helps

[P.GUAN]

What is the relationship between budgetary and monetary policies?