Answer four (4) questions. Maximum of 400 words for each question. These are questions which
require short answer responses to a series of issues relating to economic principles and
concepts. Attempt to answer each question in full and directly.
Question 1 Total 4 marks – 2 marks per part
- a) Classify each of the following items as a final good or service or an intermediate good or
service and identify which is a component of consumption expenditure, investment or
government expenditure on goods and services:
(i) Banking services bought by Coles.
(ii) Security system bought by the ANZ Bank.
(iii) Coffee beans bought by McDonald’s.
(iv) New coffee grinders bought by Starbucks.
- b) Would GDP per capita comparisons accross countries accurately indicate their relative levels
of living standard and economic welfare? Critically evaluate and answer this question.
Question 2 Total 6 marks – 2 marks
- a) The unemployment rate has recently fallen in the United States to the record low. Some
economists have stated that this is not a sign of good news, but rather bad news.
(i) Why does this mean that the drop in unemployment is bad news?
(ii) What types of unemployment are included in the natural rate of
- b) There is considerable interest Australia in whether the minimum wage rate contributes to
youth unemployment. Draw a supply and demand diagram for the unskilled labour market, and
discuss the effects of a minimum wage. Who is helped and who is hurt by the minimum wage?
Question 3 Total 6 marks – 3 marks
- a) Contrast the phenomenon of cost-push inflation with demand-pull inflation and likely impact
of each on the price level and GDP using aggregate demand and aggregate supply analysis
- b) The Turnbull government recently signed a contract with a French company to build new
submarines and plans to spend $60b for the Australian Navy submarines. These ships will be
built in South Australia. Assuming fixed prices and that all monies will be spent in Australia,
explain how the Australian economy will be affected by the $60b in new government purchases
using AD-AS framework. (Remember: If you do not talk about the AD and AS curves, you are not
using the AD-AS model.)
Question 4 Total 4 marks – 1 mark
- a) Based on the simple quantity theory of money, what would be the impact of increasing the
money supply by 25%
- b) Suppose the consumer price index (CPI) stands at 250 this year. If the inflation rate is 10 per
cent, what the next year’s CPI will equal?
- c) What the consumption function explains?
- d) A community’s saving rate is an important determinant in the model of economic growth.
Suggest a couple of ways in which policy makers may influence a nation’s saving rate.