E:£ Economics and Business Educators NSW 2007 Trial Higher School Certificate Examination Economics Total Marks ~ 100 Section I Pages 2-7 20 marks © Attempt Questions 1-20 * Use the multiple choice answer sheet provided ® Allow about 35 minutes for this section Section I Pages 8 -17 40 marks * Allow about 1 hour 15 minutes for this section Attempt Questions 21 - 24 Respond in space provided on examination paper Section IL Page 18-19 20 marks * Attempt Question 25 or Question 26 © Allow about 35 minutes for this section Section IV Page 20 20 marks © Attempt Question 27 or Question 28 * Allow about 35 minutes for this section Multiple Choice Grid Page 21 aGeneral Instructions Section I © Reading time ~ 5 minutes © Working time ~ 3 hours 20 marks © Write using black or blue pen Attempt Questions 1 - 20 * Board approved calculators may be Allow about 35 minutes for this section used © Refer to any stimulus material provided Use the multiple-choice answer sheet. Select the alternative A, B, C or D that best answers the question. Fill in the response oval completely. Sample: 2+4= (A) 2 (B) 6 ©s8 @) 9 AO 3B@ co Do Ifyou think you have made a mistake, put a cross through the incorrect answer and fill in the new answer. 4D BM CO DSO Ifyou change your mind and have crossed out what you consider to be the correct answer, then indicate the correct answer by writing the word correct and dravving an arrow as follows. AM eR mS bo1. Which of the following are developing economies? (A) _ USA, Japan, Germany (B) Singapore, Taiwan, South Korea (C) Russia, Poland, Hungary ©) India, Nigeria, Mozambique 2, Which of the following organisations is primarily responsible for stability of the international financial system? (A) IMF @®) WTo (C) World Bank (D) APEC 3. The table shows selected data for an economy Year “| Export Price | Import Price Index Index i 1 116 2 94 15 3 96 15 What are the terms of trade in year 3? (A) 103 @B) 93 © 83 ©) 73 4 Which of the following institutions is responsible for determining the minimum wage level in Australia? (A) The Australian Industrial Relations Commission (B) The federal government (C) The Australian Fair Pay Commission (D) The Office of the Employment Advocate 5: Why does business investment add to productive capacity in the economy? (A) Because investment depresses current growth at the expense of future growth (B) Because investment boosts prices on the Stock Exchange (©) Because economies must provide for depreciation of the capital stock ©) Because capital goods are the source of increases in supply in the future ee& Which types of protection lend to an increase in the price ofa protected good or service? (A) subsidy (B) tariff (©) subsidy and a quota (D) subsidy and a tariff 7 The table below shows selected data for an economy Consumption 100+ 0.6¥ Investment 300. What is the equilibrium level of income for the economy? (A) 400 ®) 600 © 800 @) 1000 8 From the table in question 8, what is the multiplier for the economy? A) 2 @) 25 © 4 ©) 45 9. The table below shows selected data for an economy ‘Year | GDP Smillions Price Index 1 400 100 2 500. 97 3 600 103 4 [700. 107 ‘What is the inflation rate for this economy in Year 3? (A) 3% (B) 3% © 6% ©) 6%10 Which of the following statements is true for an economy with a high level of inflation? (A) Intemational competitiveness will fall and real wages will fall (B) International competitiveness will rise and real wages will fal (C) International competitiveness will fall and real wages will rise (D) Intemational competitiveness will rise and real wages will rise 11. Which of the following is affected by Australian tourists travelling overseas and the level of Australian imports? (A) supply of Australian dotlars (B) demand for Australian dollars (C) demand or supply of Australian dollars (D) ability of firms to invest overseas 12. Which of the following extemalities are not included in the total cost of production of a good or service? (A) private costs (B) social costs (C)__ private costs and social costs ) costs of production 13. Which of the following characteristics distinguishes public goods from private goods? (A) Access to public goods can be restricted where access to private goods cannot (B) Public goods ean have clear property rights attached where private goods cannot (C) Property rights are enforceable for private goods but not for public goods (D) Private goods are non-rival and public goods are exclusive 14. Which of the following areas of expenditure dominate spending in Australia’s federal budget? (A) Health and education (@) Defence (C) Social Security and Welfare (@) Public service expenditure15. Which component of the Current Account on the Balance of Payments tends to be structural in nature? (A) Balance on goods and services (B) Net income (C)__ Portfolio investment (©) _ Direct Investment 16. The Stem Report concluded, "climate change is the greatest market failure the world has ever seen” ‘When does market failure occur? (A) When the prices of goods and services do not reflect the true costs of producing and consuming those goods and services (8B) When the total value of goods and services in any economy exceeds the value of producing them at factor cost (©) When all extemalities are impossible to identify in geographically diverse economies (D) When greenhouse gascs have heen emitted since the Industrial Revolution began 17. Which of the following policy setings would be appropriate in an economy with high inflation? (A) Low interest rates and a budget deficit (B) High intrest rates and budget surplus (©) Low interest rates and tax cuts for low income earners (D) High interest rates and tax cuts for high income earners 18. Which nations are the largest importers of capital inthe global economy? (A) Australia, China and Japan (B) Japan, China and Germany (C) USA, Spain and the United Kingdom (D) USA, Japan and China 19. Which of the following Federal institutions has experienced a reduction in power under the Work Choices reforms? (A) The Office of the Employment Advocate (B) The Australian Fair Pay Commission (C) The Department of Industry and Commerce (D) The Australian Industrial Relations Commission a nie cere ee eee20. Which of the following automatic stabilisers will lead to an increase in government revenue during an upswing of the business cycle? (A) Increased unemployment benefit payments (B) Decreased unemployment benefit payments (©) __ Increased income tax receipts (D) Decreased Income tax receipts END OF SECTIONSECTION IL 40 marks Attempt Questions 21-24 Allow about 1 hour and 15 minutes for this section Answer the questions in the spaces provided. —_NNVQaemr Question 21 (10 marks) Marks Microeconomic reform ~ big gains from new wave of reform, says Productivity Commission 5/3/07 — The next major round of economic reforms should focus on key inputs to production such as the quality of the workforce and major infiastructure, according to & new report from the Productivity Commission. The greatest gains come from investment in ‘human capital’, a term used fo describe the quality and quantity of the labour force. Improvements in health care, including beiter management of chronis diseases, could lift workforce participation and add up to 6 per cent to GDP. Meanwhile, education reforms could boost economic growth by another 3 per vent. Both gains are estimated over a 25 year period. competition in the energy and transport sectors could boost economic growth by ait cetimated 2 per cent. The National Reform Agenda is regarded as the next major stage of microeconomic reform, building upon the successes of the national competition Policy reforms introduced in the mid-1990s. The NRA’s priorities reflect @ shift from a focus on removing regulatory barriers to efficiency, to improving the quality of inputs to the production process, as the most powerful way to lift output Source: edited from http/Avww.leadingedueeducation com awnewsnews bial Question 21 continues on page 9 Se eyMarks @ Explain how microeconomic reform can bring about an inerease in 5 aggregate supply. Question 21 continues on page 10 ey() With reference to a spe cific example, describe structural change in an Australian industry. End of Question 21Question 22 (10 marks) Marks Effect of a Tariff s Price D $A 35 25 10 s D 40 50 55 60 70 Quantity (units) @ __ Distinguish between a tariff and a subsidy. Question 22 continues on page 12 aE rere eee(b) Outline the impact of the world price on domestic producers in an unprotected market (©) Discuss the impact of Australia’s reduced protection levels on the Australian economy.Question 23 (10 marks) Marks Cash Rate % % : ae : : 7 : an : “Or ee3 1388 “tar teed aout aes aa aa 40 Source: http://www.rba, £ov.au/Education/monetary policy htm! @) Define the term ‘interest rate’. 2 (©) Outline the process used by the Reserve Bank of Australia to influence the 3 general level of interest rates, Question 23 continues on page 14 ee(©) Explain how an increase in the cash rate impacts on the level of 5 economic activity in the Australian economy. End of Question 23, aQuestion 24 (10 marks) Marks December 2006 December 2005 Current Account ($bn) $53.9bn -$53.5bn cap {eot GDP) “5.8% “5.9% Balance on goods and services -$11.6bn ~$16.8bn Net foreign debt $521.2bn $470.0bn Foreign debt (% of GDP) 55.8% 51.6% Net foreign equity $85.8bn $61.4bn. Source: adapted from http://www leadingedee.com,awwhatsnew/statistics html (@) Identify the trend in Australia’s balance on goods and services between 1 December 2005 and December 2006. {(b) With reference to the table, identify the measure of Australia’s foreign debt 1 sustainability. Question 24 continues on page 16 a(©) Outline the impact of Australia’s Capital and Financial Account surplus on the Current Account of the Balance of Payments, Question 24 continues on page 17(@ Account for the high ongoing level of Australia’s Current Account deficit. 5 End of Question 24SECTION IIE 20 marks Attempt either Question 25 or Question 26 Allow about 35 minutes for this section Answer the question in a writing booklet. Extra writing booklets are available. oe Question 25 In your answer you will be assessed on how well you: * Use your own knowledge and the economic information provided * Apply economie terms, concepts, relationships and theory ° Present a sustained, logical and well-structured answer to the question Outline the extent of income inequality in Australia and evaluate the impact of government policy on the distribution of income and wealth, ‘The budget announced that the income threshold at which the 30 per Cent marginal ax Tate cuts in would be increased from $25,001 to $30,000 from this July. The Low Income Tax Offset - a special tax benefit for lower income eamers - would be increased from $600 to $750 from this July and would begin to phase out once people eamed $30,000 (up from $25,000 now). The combined effect of these two measures will be to target the biggest tax cuts in both dollar and Percentage terms at the so-called "Howard battlers" - working people paid Significantly below average weekly earnings which now stands at about $50,000 a year. From July next year the Government will increase the income threshold for the 40 er cent tax rate from $75,001 to $80,000. And the income level that attracts the top marginal tax rate of 45 per cent will increase from $150,001 at present to $180,000, :/forww uusiness/tax-relief-aim icome-groups!2007/05/08/1178390299737.html ORTn your answer you will be assessed on how well you: * Use your own knowledge and the economic information provided * Apply economic terms, concepts, relationships and theory * Present a sustained, logical and well-structured answer to the question Question 26 Outline the current industrial framework in Australia and evaluate the effectiveness of labour market policy in achieving the federal govemment’s economic growth and employment objectives. “The (Wages) system should promote growth through higher employment and Productivity. Apart ftom appropriate macro-economic policies, the economic Performance of the labour market will be determined mainly by the level and structure of Wages, technological advance, and both physical and human capital accumulation - that 3s the skill level of workers as well a the innovative and organisational competence of employers.” Source: Professor Joseph Isaac 2006 6-10 EMPLOYED PERSONS, Porcantago change in annual average employment — hittin Bo mm Partin a 78 i; oe 00 -25 50 188284 = 1087-88 teaie2 1006-66 —taGS.00 2008.04 ‘Source: ABS dota avaiatla on cequest, Labour Force Survey. [SeSECTION IV 20 marks Attempt either Question 27 or Question 28 Allow about 35 minutes for this section Answer the question in a writing booklet, Extra writing booklets are available, In your answer you will be assessed on how well you: > Use economic data > Apply economic terms, concepts, relationships and theory > Present a sustained, logical and well-structured answer to the question Question 27 (20 marks) Analyse the effects of fluctuations in exchange rates on the Australian economy. OR Question 28 (20 marks) Analyse the impact of globalisation on the economic performance of an economy other than Australia, END OF PAPERStudent Name/Number: Section I ~ Multiple Che Select the alternative A, B, C or D that best answers the question and indicate your choice with a cross (X) in the appropriate space onthe grid betow. e Answer Sheet Do not use pencil. Use a black pen, Ifyou change your mind, place a cross over that box, and fill in the new box, 10 u 12 13 4 1s 16 18 19