2011 Economics Prelim ES PDF

2011
PRELIMINARY
EXAMINATION PAPER

Economics

General Instructions
Reading Time 5 minutes
Working Time 2 hours
Write using black or blue pen
Board-approved calculators
may be used
Write your Student Number at
the bottom of this page

Total Marks - 80
Section I Pages 27
20 marks
Attempt Questions 120
Allow about 20 minutes for this section

Section II Pages 811
20 marks
Attempt both Question 21 and Question 22

Section III Page 1213
20 marks
Attempt either Question 23 or Question 24

Section IV Page 14
20 marks

THIS PAPER CANNOT BE RELEASED IN PUBLIC UNTIL AFTER 21st SEPTEMBER 2011
This paper is used with the understanding that it has a Security Period.

Student Number: __________________________________
2011 Preliminary Paper
Disclaimer: This paper is written as a Preliminary
paper. It is designed to provide practice consistent
with the demands of the Preliminary course and its
examination. However, we do not guarantee it
predicts question content for a students actual
Preliminary examination.

Economics Preliminary 2011

Total Education Centre 2011 2
Section I

20 marks
Attempt Questions 120

Use the multiple-choice answer sheet for Questions 120.

1 When are two goods A and B considered to be complementary?
(A) A rise in the price of A causes demand for B to increase
(B) A rise in the price of A causes demand for B to decrease
(C) A rise in the price of A causes no change in demand for B
(D) Income elasticity of demand for both goods are positive

2 What is a characteristic of perfect competition?
(A) A single firm produces the entire industry output.
(B) There is product differentiation.
(C) There is a low degree of competition.
(D) Each firm produces a homogeneous product.

3 What is productivity?
(A) Total production of goods and services
(B) Gross Domestic Product
(C) Output per unit of input
(D) One of the factors of production

4 Which of the following are included in the sources of income?
(A) Price, salaries, wages, interest
(B) Profits, interest, rent, wages
(C) Output
(D) Salaries


5 What will happen to total consumer outlay if demand for a good is relatively price
inelastic?

(A) A rise in price will lead to a fall in total consumer outlay.
(B) A fall in the price will lead to a rise in total consumer outlay.
(C) A rise in the price will lead to no change in total consumer outlay.
(D) A fall in price will lead to a fall in total consumer outlay.

6 The following data is for an economy whose equilibrium level of income is given by
the equation Y=C +I +G +X - M

YEAR 1 YEAR 2 YEAR 3
Gross Domestic Product
Private Consumption
Investment
Government Spending
500
340
40
140
530
350
50
120
560
390
50
130

In what year is there a leakage in the circular flow of income?
(A) Year 1 only
(B) Year 2 only
(C) Year 1 and 3
(D) Year 2 and 3

7 Which of the following is most likely to provide the greatest stimulus to domestic
employment and output in the short run?

(A) Decreased interest rates, decreased income tax rates and increased government
expenditure
(B) Decreased interest rates, increased income tax rates and decreased government
expenditure
(C) Increased interest rates, increased income tax and decreased government
expenditure
(D) Decrease interest rates, decreased income tax rates and decreased government
expenditure

8 What is the central problem that is faced by any economy?
(A) To distribute goods and services fairly
(B) To satisfy the unlimited wants with the limited resources
(C) To satisfy the limited wants with the unlimited resources
(D) To distribute resources between competing users

9 This table shows the output of a firm using two inputs, labour and capital.

Labour
(units)
Capital
(units)
Output
(units)
100
200
20
40
100
180

What is the firm experiencing?

(A) Constant returns to scale
(B) Decreasing returns to scale
(C) Increasing returns to scale
(D) Short run period

10 Which policies does the Australian government use to redistribute income?
(A) Competition and environmental policies
(B) Monetary and Fiscal policy
(C) Taxation policy and social security transfers
(D) The provision of goods and services by public trading enterprises

11 When would the level of hidden unemployment tend to rise?
(A) The level of economic activity falls
(B) The level of economic activity rises
(C) The level of technology falls
(D) The level of technology rises


12 This is a production possibility curve.

What is the opportunity cost of producing the first 200 cars on PPC1?
(A) One hundred computers
(B) One hundred and twenty five computers
(C) Two hundred computers
(D) Two hundred and seventy five computers

13 Which of the following is an example of a product market?
(A) The market for capital goods
(B) The market for motor vehicles
(C) The market for investment
(D) The financial market

14 Which group would be most burdened when an indirect tax is placed on a good that is
relatively inelastic?

(A) The consumers of the good
(B) Producers and consumers
(C) The producers of the good
(D) The government
PPC 1
CARS
400

200

0
100 125 200 400
COMPUTERS
X
Y
PPC


15 What is the most common way by which wages are increased in Australia?

(A) The safety net increases
(B) Individual workplace agreements
(C) Industrial awards
(D) Enterprise bargaining agreements

16 The inability of the price mechanism to provide public goods is an example of which
of the following?

(A) Private costs
(B) Social costs
(C) Market failure
(D) Externalities

17 This table is a simple income-tax schedule.

Taxable income Marginal tax rate
$1 - $25 000 20%
$25 001 - $35 000 30%
$35 001 - $50 000 40%
$50 000 and over 50%

What is the approximate average rate of tax for an individual with a taxable income of
$40 000?

(A) 5%
(B) 11%
(C) 22%
(D) 31%

18 A bank advertises a nominal interest rate of 7.5% on a savings account and the
inflation rate is 2.5%.

Which of the following indicates the real rate of interest paid on the savings account?

(A) 10%
(B) 7.5%
(C) 5%
(D) 2.5%

19 What is the quantity of money that exists in the economy at any given time called?
(A) Broad money
(B) Money base
(C) Money supply
(D) M3

20 What is the ultimate objective of monetary policy?
(A) to control inflation
(B) to control money supply growth
(C) to achieve non-inflationary economic growth
(D) to supervise banking operations


Section II

20 marks
Attempt Questions 21 22

Answer the questions in the spaces provided.

Question 21 (10 marks)

The graph below represents Australians Household Savings Ratio.

(a) Describe the trend in the savings ratio from 2002 onwards. 2

(b) Explain the TWO components that make up consumer income. 2

Question 21 continues on page 9

Question 21 (continued)

(c) Explain TWO reasons why consumers may want to increase their savings. 2

(d) Discuss the impact of increased savings on the circular flow of income. 4

End of Question 21



The following diagram shows the demand and supply of a particular good.

(a) Identify the current equilibrium price and quantity. 1

(b) Explain why the price 0X could not be maintained. 2

Question 22 continues on page 11

Question 22 (continued)

(c) (i) The government places a price floor by entering the market as a buyer.

Identify the amount it would purchase.

1

(ii) Explain why the government may not want to intervene in the market
place.
2

(d) Describe TWO factors that could shift the demand curve to the right. 2

(e) Explain what would happen to the supply curve when the demand curve shifts to
the right.
2

End of Question 22
Section III
20 marks
____________________________________________________________________________

In your answer you will be assessed on how well you:
demonstrate knowledge and understanding relevant to the question
use the information provided
apply relevant economic terms, concepts, relationships and theory
present a sustained, logical and cohesive response


Describe the different types of budget outcomes used by the Australian government and
explain the budgets main economic functions.

Source: Australian Treasury

OR

Budgets must keep stimulus and investment flowing
to support the economy in tough times, and lock in
savings that will get us back to surplus when the
tough times have passed. We must do this while
also making the essential long-term investments that
put in place the building blocks of a more productive
and competitive economy into the future.

Preliminary Economics 2010

Total Education 2011 13

Discuss the current changes in Australias labour market and their impact on the demand and
supply of labour.

Source: ABS

Source: ABS
Unemployment Rate
Employed Persons
Labour is a key input to economic activity.
Availability, quality and flexibility of labour inputs are
important influences on decision making by business.


Total Education 2011 14
Section IV

20 marks

In your answer you will be assessed on how well you:
demonstrate knowledge and understanding relevant to the question
apply relevant economic information, terms, concepts, relationships and theory
present a sustained, logical and cohesive response


Examine the role of government in achieving economic and social goals in an Asian economy.

OR


The Reserve Bank has a significant role in the economy.

Examine its role in determining the cash rate and its influence on interest rates and the level of
economic activity.

End of paper

Economics Preliminary Total Education 2011
Section I Multiple Choice Answer Sheet

Student Number/Name

2011 ECONOMICS PRELIMINARY EXAMINATION
Section I Answer Sheet

20 marks
Attempt Questions 1 20

Select the alternative A, B, C, or D that best answers the question. Fill in the response circle
completely.

1 A B C D
2 A B C D
3 A B C D
4 A B C D
5 A B C D
6 A B C D
7 A B C D
8 A B C D
9 A B C D
10 A B C D
11 A B C D
12 A B C D
13 A B C D
14 A B C D
15 A B C D
16 A B C D
17 A B C D
18 A B C D
19 A B C D
20 A B C D


Total Education 2011 1 Prelim Economics Marking Guidelines

2011 Preliminary Economics Marking Guidelines
MULTIPLE CHOICE ANSWERS
Correct answer and nature of question
1 B Demand and Supply 11 A - Labour
2 D - Firms 12 D Economic Problem
3 C - Productivity 13 B - Markets
4 B Sources of Income 14 A - Markets
5 D Demand 15 D Labour
6 B Circular Flow 16 C Markets
7 A Financial 17 C - Government
8 B Economic Problem 18 A Finance
9 B Labour 19 C Finance
10 C - Government 20 A - Finance


(a) (1 marks)
Outcomes Assessed: P1
Describe the trend in the savings ratio from 2002.

Criteria Marks
Identifies and gives an explanation in the savings ratio 2
Identifies the trend in the savings ratio 1
Sample answer
Upward trend from a negative in 2002 (disavings of negative 2-3%) to about 10% in
2010

(b) (2 marks)
Explain the TWO components that make up consumer income.

Criteria Mark
Identifies and explains the two relevant components 2
Explains one OR lists two components 1
Answer suggestions
An explanation of the two components Y=C+S

(c) (2 marks)
Explain TWO reasons why consumers may want to increase their savings.

Criteria Mark
Explains two valid reasons 2
Explains one valid reason or lists two 1
Answer suggestions
Reasons for increasing savings could include fear of job losses, global recession,
increasing interest rates

(d) (4 marks)
Discuss the impact of increased savings on the circular flow of income.

Criteria Mark
Provides in detail the effects of a savings on the circular flow of income 3-4
Outlines briefly how savings can impact on the circular flow of income 1-2
Sample answer
Savings is a leakage and therefore any increase in savings will reduce consumption
spending which will reduce production and employment and further reduce income. If
this leakage is matched by and injection such as investment then the level of economic
activity will increase


(a) (2 mark)
Identify the current equilibrium price and quantity.

Criteria Mark
Correctly identifies the equilibrium price and quantity 1
Sample answer
P-price, B-quantity

(b) (2 marks)
Explain why the price 0X could not be maintained.

Criteria Mark
Provides a valid explanation why this price could not be maintained 2
Lists a reason 1
Sample answer
Excess supply exists (AYZC) not enough demand. This means suppliers are unable to sell
the goods and prices must fall. Thus there will be an extension in demand and a
contraction in supply.

(c) (3 marks)
Outcomes Assessed: P8, P11
If the government placed a price floor by entering the market as a buyer, identify the amount it
would purchase. Explain why the government may not want to intervene in the market place.

Criteria Mark
Identifies the price floor and explains why the government will not interfere 2-3
May identify the price floor, very limited explanation 1
Answer suggestions
Price floor -0X
Government would not wish to distort the market by placing a price floor as this leads
to a misallocation of resources.


(d) (2 marks)
Describe TWO factors that could shift the demand curve to the right.

Criteria Mark
Provides a description of two valid factors 2
Describes one valid factor OR lists two 1
Answer suggestions
Valid factors include increase in taste, increase in income, price of complementary
goods fall, price of substitutes rise, increase in population

(e) (2 marks)
Explain what would happen to the supply curve when the demand curve shifts to the right.

Criteria Mark
Provides a valid explanation of the change in the supply curve 2
Lists a reason for this movement 1

Answer suggestions
There is an extension in supply more will be supplied at a higher price



Outcomes Assessed: P1, P2, P5, P7, P8, P9, P10

Describe the different types of budget outcomes used by the Australian government and
explain the budgets main economic functions.

MARKING GUIDELINES
Criteria Marks
Demonstrates a clear and concise knowledge and understanding of different
types of budget outcomes and explains their main economic functions
Integrates appropriate economic terms, relevant concepts, relationships and
theory
Synthesises own information with the information provided to develop a
sustained, logical and cohesive response

17-20
Demonstrates clear knowledge and understanding of different types of
budget outcomes and explains their main economic functions.
Consistently uses appropriate economic terms, relevant concepts,
relationships and theory
Uses own information and the information provided to develop a logical and
cohesive response

13-16
Describes of different types of budget outcomes and explains their economic
functions
Uses some of the information provided
Uses appropriate economic terms, concepts and relationships
Uses own information and the information provided to develop a coherent
response

9-12
Outlines types of budget outcomes and explains some economic functions
Uses some appropriate economic terms, concepts and relationships
Uses information to develop a generalised response

5-8
Makes some mention of budget outcomes and limited outline of their
functions
Uses some economic terms and/or concepts
Presents a limited response

1-4

Answers could include
Government Budget deals with the governments expenditure and revenue
Describes the types of budget outcomes surplus, deficit, balanced, also include
expansionary and contractionary budgets
Main economic functions included internal balance (during the global financial
crisis), external balance, redistribution of income, resource allocation, ecological
sustainable development, sustainable economic growth



Outcomes Assessed: P1, P2, P3, P7, P8, P9, P10

Discuss the current changes in Australias labour market and its impact on the demand for
and supply of labour.
MARKING GUIDELINES
Criteria Marks
Demonstrates a clear and concise knowledge and understanding of the
changes in Australias labour market and its impact on the demand for
and supply of labour
Integrates appropriate economic terms, relevant concepts, relationships
and theory
Synthesises own information with the information provided to develop
a sustained, logical and cohesive response
17-20
Demonstrates clear knowledge and understanding of the changes in
Australias labour market and its impact on the demand for and supply
of labour
Uses own information and the information provided to develop a
logical and cohesive response
13-16
Describes the changes in Australias labour market and identifies some
impact on the demand for and supply of labour
Uses some of the information provided
coherent response
9-12
Outlines some changes in Australias labour market and may identify
some factors relating to the demand for and supply of labour
5-8
Makes some mention of Australias labour with some reference to the
demand for and supply of labour
1-4
Labour market is where individuals seeking employment interact with employees
who want to obtain the most appropriate labour skills for their production process.
Factors affecting the demand for labour derived demand, productivity, level of
output
Factors affecting the supply of labour skills, experience, mobility, participation rates
Current trends increasing casual and part time work, increasing female participation
rates, decline in unskilled work, greater job flexibility, upward trend in the demand
for labour, downward trend in the unemployment rate.
These current trends will then impact on the quality and size of Australias labour
market need for increased training and skills especially in the mining area, increased
in demand for labour via - migrants with specialised skills, need for greater mobility
of labour


Outcomes Assessed: P2, P4, P7, P8, P10

Examine the role of government in achieving economic and social goals in an Asian
economy.

MARKING GUIDELINES
Criteria Marks
role of government in an Asian economy in achieving economic and
social goals
and theory
Synthesises own information with the information provided to develop
a sustained, logical and cohesive response
17-20
Demonstrates knowledge and understanding of the role of government
in an Asian economy in achieving economic and social goals.
logical and cohesive response
13-16
Describes some aspects of the role of government in an Asian economy
in achieving economic and social goals
coherent response
9-12
Outlines some aspects of the role of government in an Asian economy
in relation to some goals
5-8
Outlines some aspects of the role of government in an Asian economy
May refer to some examples of economies other than Australia
1-4

Identification an appropriate Asian economy
Outline a range of economic and social goals- employment, economic growth and
economic development, stability, ecological sustainability, education, quality of life,
standards of living
Role of government in achieving these objectives- success of policies (macro/micro),
limitations on government policy, political philosophy, external influences,
Comparisons with Australia and other countries



Outcomes Assessed: P1, P5, P7, P8, P10

The Reserve Bank has a significant role in the economy.

Examine its role in determining the cash rate and its influence on interest rates and the level
of economic activity.

MARKING GUIDELINES
Criteria Marks
role of the Reserve Bank in determining the cash rate and its influence on
interest rates and the level of economic activity
and theory
Synthesises own information with the information provided to develop a
sustained, logical and cohesive response
17-20
Demonstrates knowledge and understanding of the role of the Reserve
Bank in determining the cash rate and its influence on interest rates and
the level of economic activity
Uses own information and the information provided to develop a logical
and cohesive response
13-16
Describes some aspects of the role of the Reserve Bank in determining
the cash rate and interest rates and the level of economic activity
Uses own information and the information provided to develop a coherent
response
9-12
Outlines some aspects of the role of the Reserve Bank and its influence
5-8
Outlines some aspects of the role of the Reserve Bank
May refer to some examples of economies other than Australia
1-4

Explanation of the role of the Reserve Bank relating to its influence over interest rates
and prices
Explanation of the cash rate and how it is determined
The link between the cash rate and interest rates in general
The impact of interest rates on the level of economic activity levels of savings,
consumption, investment, prices, external markets, international competitiveness

PRELIMINARY ECONOMICS MAPPING GRID

Exam Section Question Marks Syllabus/Course
outcomes
Content Answer
Section 1
Multiple Choice
1 1 P1 Government and the
economy
A
2 1 P8 Markets B
3 1 P1 Consumers and Business D
4 1 P11 Labour markets D
5 1 P1 Labour markets C
6 1 P11 Markets A
7 1 P7 Introduction to economics D
8 1 P7 Introduction to economics C
9 1 P8 Markets C
10 1 P2 Markets B
11 1 P1 Labour markets A
12 1 P8 Labour markets A
13 1 P11 Introduction to economics B
14 1 P1 Financial markets C
economy
A
economy
C
17 1 P11 Consumers and Business D
18 1 P1 Financial markets B
economy
C
20 1 P6 Financial markets D
Section II
Short answers
21 10 P2, P7, P11 Introduction to economics N/A
22 10 P1, P2, P3, P6,
P7
Markets N/A
Section III
Stimulus
responses
23 20 P1, P2, P6, P7,
P9
Government and the
economy
N/A
24 20 P1, P2, P3, P5,
P7, P9
Financial markets N/A
Section IV
Extended
responses
25 20 P1, P2, P3, P7,
P8,
Markets N/A
26 20 P1, P2, P3, P5,
P7, P8
Labour markets N/A

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