Macroeconomics Term 2 Economics Sample Examination A

Answer all Questions.

Use the Answer Sheet provided to select the most correct alternative.

1.     A decrease in the structural component of a Federal budget deficit might be due to :

A        a drop in the level of economic activity

B         an improvement in tax revenue due to stronger economic growth

C        an increase in social service payments

D        the introduction of a new tax

2.     Which of the following is least likely to withdraw money from the circular flow?

A        higher income tax rates

B        a government budget deficit

C        reduced foreign investment in Australia

D        a government budget surplus

3.     With the same amount of resources country A can produce 150 watches or 75 computers. Country B can produce 140 watches or 40 computers. According to the law of comparative advantage, from this information country B should :

A        export watches

B        export computers

C        import both goods

D        engage in no trade

4.     The main role of money is to act as a:

A unit of account

B store of value

C medium of exchange

D standard for deferred payments

Use the table below to answer Question 8.

8.     Compared to Year 1, in Year 2 the terms of trade have :

A        improved, thus ensuring a current account surplus

B         deteriorated, thus ensuring a current account deficit

C         improved, thus requiring fewer exports to pay for a given volume of imports

D        deteriorated, thus requiring more exports to pay for a volume of imports

9.     A large fall in the price of oil in an economy is most likely to :

A        shift Aggregate Demand to the left causing prices to fall

B         reduce employment and national income but increase inflation

C         shift Aggregate Supply to the right causing both inflation to fall and

employment to rise

D        lead to an inflationary gap

10.   A rise in AD while the economy is in the Keynesian

range of the AS curve will increase :

A        unemployment

B         real GDP

C         inflation

D        the productive capacity of the economy

11.   The term Public Debt refers to :

A        the total funds owed by Australian governments at a particular point of

time

B         the total funds owed by the Australian government to overseas

investors

C         the total debt of the Australian public

D         the total funds owed by the Australian public and private sectors to

overseas investors

12.   Which of the following could explain an increase in the unemployment rate and the number of employed people :

A        less people are actively looking for work

B        the school leaving age has risen

C       the economy has experienced a downturn

D       the labour force has increased

13.   Liquidity refers to the:

A speed of access to financial assets

B ease with which an asset can be converted to cash

C desire of individuals or firms to hold cash

D ease with which cash can be converted to an asset

14.   To ease monetary policy the Reserve Bank could:

A dirty the floating exchange rate by buying Australian dollars

B raise the official cash rate of interest

C reduce the official cash rate of interest

D reduce interest rates charged by banks on all loans

15.   Fiscal Policy is usually defined as:

A the total value of government debt

B the public sector borrowing requirement

C the variations in outlays and revenue of the Commonwealth Government

D the difference between the outlays and revenue of all levels of government in a given  year

16.   A contractionary fiscal policy would be consistent with:

A taxation cuts

B increasing a budget deficit

C cutting government expenditure

D all of the above

17.   A cyclical budget deficit could result from:

A         increasing unemployment

B          higher than expected taxation revenues

C         planned higher levels of government expenditure

D        greater economic growth than predicted

18.   Automatic fiscal stabilisers:

A        operate only as the economy goes into a recession

B         smooth cyclical changes in economic activity

C         require discretionary policy decisions before they operate

D        are no longer used by the Commonwealth government

19.   You receive $200 interest after saving $4000 for a year. The

CPI  increased by 12 %. The real rate of interest is:

A 5%

B -7%

C 7%

D 17%

20.   A suitable monetary policy response to excessive aggregate

demand would be to:

A        tighten monetary policy by buying government securities

B         tighten monetary policy by selling government securities

C         expand government spending

D        increase the level of taxation

SECTION B

Answer Questions 21 and 22 in the same Writing Booklet.

Clearly number each Question.

Start each Question on a new page.

Each Question is worth 10 marks.

21. (a) Explain some of the effects of the Australian dollar on different sectors of the economy. (5 marks)

(b) Use an AD/ AS diagram to illustrate the effect of a reduction in interest rates when the economy is at full employment (5 marks)

22.     a) Explain the difference between the cyclical and structural aspects of the federal government budget (5 marks)

b) Why do GDP figures give an incomplete indication of a country’s standard of living? (5 marks)