HSC TRIAL

Question 1

Answer 1

Continuing world economic growth has indisputable evidence that links economic growth with deterioration of the environment as seen in graph 1. Graph 1 depicts the increases of fossil carbon dioxide emission from countries such as China and India due to their high levels of economic growth from the manufacturing industry seen in China and also the growing automotive industry in India. The graph also shows countries such as the United States with a stagnated level of CO2 emissions, but still emitting as seen in the graph around 5000 million tonnes of CO2 every year. These countries have some of the leading economies in the world and lead world economic growth, which proves why also they produce large amounts of CO2.

1: China has the 2nd largest economy in the world with having a current nominal GDP of 15 trillion USD, with the United States having the largest nominal GDP of 20 trillion USD. China has the largest Purchasing Power Parity in the world since 2010 and has been able to amount this high level of economic growth through their implementation of Special Economic Zones throughout China which have allowed them to create an economy built off of mainly industry and construction which accounts for around 50% of China’s GDP. China’s annual economic growth has gone between 7% - 15% since 1980 and they account for 20% of the worlds GDP. This means that the worlds economic growth also reflects chinas economic growth as china’s world fossil carbon dioxide emissions grew 350% from 1990 to 2015 and are now the leaders in carbon dioxide emission, whilst also emitting 30% of the worlds carbon emmisions. These emissions are caused by the need for factories in order to produce the products that China makes. China is higher than the USD in emmisions as China is a developing economy and has less pressure by the UNFCCC to implement legislation and infrastructure to reduce carbon emissions. Chinas economic growth has lead to a sharp increase in climate change which has lead to the average temperature of the world increasing over the last 40 years by around 1-degree celsius. Climate experts predict that an increase of 3 more degrees will cause catastrophic irreversible damage on our world with heatwaves and hurricanes being more common and some places on earth becoming inhabitable
2: India is another country that is nuts. They are currently following chinas footsteps with nominal GDP and carbon emissions as they are a developing country. Indias nominal GDP is worth 3 trillion dollars and is the 5th largest economy in the world. India’s emissions have grown by 300% in the past 25 years as they account for 7% of the worlds carbon emissions. This growth in emissions has been reflective of their economic growth which has averaged at around a 7% annual increase in their GDP. This means that their economy is growing faster than the average world Real GDP growth which is seen in graph 2 at around 3%. This has been due to the recent growth in their automotive industry which is now the 4th largest automotive industry in the world. This economic growth of their automative industry has caused them to be the 3rd highest producing carbon emissions country in the world as seen in graph 1. This economic growth directly effects standards of living in India, this causes greater demands on are being placed on limited natural resources to satisfy Indias energy and food supplies. Annual carbon emissions are said to be growing by 2% every year, but China and Indias carbon emmisions have been growing by 4% every year over the same period. This is due to they are both countries that have the fastest-growing economies in the world. Carbon emmisions due to the increase in standard of living is dangerous for the environment as it causes India as a country to be hotter, which is unsustainable as India is one of the hottest countries in the world.

3= USA has been experiencing low levels of economic growth compared to India and China as they have been experiencing economic growth of around 2% annually. This has been due to USA’s industry’s and the USA’s standard of living has already been established. This low level of economic growth, when compared to China and India, reflects their stagnant carbon emissions. Although their carbon emissions are the 2nd highest in the world, it has not grown heavily over the past 50 years as seen in graph 1. This is because their industries such as the automotive industry are already established which causes their high standard of living to be established. A high standard of living requires the utilisation of non-renewable resources in order to supply food and power to the country. The US is currently the 2nd highest energy user in the world which reflects their carbon emissions. The USA’s carbon emissions have even decreased since the year 2000 seen in graph 1 due to the implementation of legislation from the UNFCCC in order to fight climate change such as the introduction of carbon tax etc. This push by the UNFCCC is due to the USA is already a developed economy which means that they are in a financial position to introduce these changes. China and India have not been pushed to introduce these changes resulting in a faster-growing economy that provides a higher annual change in carbon emissions.

Question 2

If i need to talk about china as a case study what would my intro kinda look like

Answer 2

Since the 1970s china has adopted startegies in order to shift away from a centralised planned economy and promote ______ through encouraging foreign direct investment, trade between other economies, technology flows and financial flows. This was done through strategies such as special economic zones, trade liberalisation and entry into the world trade organisation. They were able to increase hdi as well through education policies, healthcare policies and a min wage increase. Globalisation has allowed China to utilise these strategies in order to grow between 5-15% gdp annually which has resulted in higher standards of living for china and a dramatic increase in carbon dioxide emissions due to their requirement for greater food supplies and greater power requirements.

Question 3

Explain the open door policy that china implemented

Answer 3

China opened a door to foreign investment, financial flows and technology flows. IT was implemented in the 1970s by Deng Xiaoping who created special economic zones in Shenzhen and Shanghai which offered tax incentives and lower import duties to potential foreign companies looking to invest. Economics of scale created in manufacturing industries, China became exporters, rapid increases in productive capacity, investment and net exports. The open-door policy spread to all of China after removal of foreign ownership regulation and financial deregulation. This increases income inequality as owners of capital tend to receive most of the increases in national income. Gini coefficient rose from 0.30 to 0.60 in China after the open-door policy implementation.

Question 4

Explain Chinas Trade Liberalisation and WTO entry

Answer 4

Tariffs were cut down and the average tariff rate was below 5%. China entered the WTO in 2001, giving it an advantage in global trade organisations. THe pursuit of trade liberilisation says that countries should specialise in goods and services where they have the lowest opportunity cost and import goods they cannot produce efficiently. China are able to make many of the worlds goods at a cost leadership compared to other economies.

Question 5

Explain Chinas Financial Deregulation

Answer 5

Financial markets in china were deregulated starting from 1990 when stock exchanges were established in shanghai and Shenzhen. Shanghai stock exchange became the 5th largest in the world when this occurred. China had an increased portfolio investment and FDI, china now has the 2nd largest stock of FDI after the USA.

Question 6

Explain Chinas Healthcare policy

Answer 6

In 2003, Chinese government expanded the co operative medical scheme to cover 70% of medical bills for rural households. This increased the life expectancy from 68 years old to 75 when this was introduced.

Question 7

Explain chinas growth and living standards

Answer 7

Income per capita increased from 980 dollars in 1990 to 14,000 in 2015 in terms of Purchasing power parity. China reached all the Millennium Development goals by 2015, China ranked 90th of 188 countries on HDI. China since the year 2000 has accounted for 1/3rd of the Global GDP growth.

Question 8

What trade agreements is australia apart of

Answer 8

AUSFTA with USA caused initially tariffs on many goods to drop from 2005. Then in 2015 it was updated so all tariffs are dropped for all goods between the countries.

KAFTA with south Korea in 2014 had 99% of goods between the countries having no tariffs.

CHAFTA with China in 2014 caused around 98% of tarifs to be lifted for goods that are exported and imported between the two countries. This agreement also gave access to certain Chinese services in the financial area to the Australian people.

Question 9

What are sum protectionist policies

Answer 9

Tariffs - Tax on imports from other countries and foreign markets. The government looks to restrict imports of foreign goods and services, in order to protect its own industries and companies manufacturing items and raise tax revenues.

Quotas- they are a direct restriction on a number of certain goods that may be permitted into a nation. This import quota is enforced by the issuance of import liscnences to a certain group of persons or companies. They also are here to stop dumping

Subsidies - these are government payments to domestic producers. THis can come in the form of cash payments, tax breaks and government ownership of common stock in domestic companies. Subsidies help domestic producers by having extra cash available for production of goods thereby lowering manufacturing costs.

Question 10

Why does protectionism occur

Answer 10

Protecting jobs and industries: - It protects workers livelihood and the industries and the firms that employ them are vital to a nations economic growth and wellbeing.

National security: - industries involved in trade protectionism policies include defense related companies, high tech firms and food producers. Industries such as aerospace, advanced electronics and semi conductors are vital components of national defence policy and if we outsource them we are at risk of war.

Infant industry: - New manufactures have difficulty competing against well established companies in foreign countries.

Question 11

Alex has worked full time for the last two years at her current place of work. Under Australia’s national system for determining minimum employment standards, and assuming all other things being equal, Alex is NOT guaranteed

redundancy pay.

four weeks annual leave per year.

notice of termination of her employment.

protection against unfair dismissal by her employer.

Answer 11

protection against unfair dismissal by her employer.

Question 12

A government decides to reduce the import quota for a product. Other things being equal, which of the following is most likely to occur in the domestic market?

The revenue of foreign producers will increase.

The domestic price of the product will increase

Domestic firms will produce less of the product.

The market share of foreign producers will increase.

Answer 12

The domestic price of the product will increase

Question 13

A government has changed the method of financing its budget deficit. Instead of borrowing from the domestic private sector, it will now borrow from overseas. All other things being equal, what is the most likely impact of this change on the domestic economy?

The foreign debt will decrease.

The budget deficit will decrease.

Current account deficit will increase.

Domestic borrowing costs will increase.

Answer 13

Current account deficit will increase.

Question 14

Which of the following could lead to a deterioration in the structural component of Australia’s current account deficit?

An increase in net foreign liabilities

A decrease in portfolio investment by foreign firms

A decrease in export volumes due to a weakening global economy

An increase in imports resulting from an improvement in the terms of trade

Answer 14

An increase in net foreign liabilities

Question 16

What is market failure

Answer 16

Market failure occurs when the price mechanism does not show the impact of externalities on the environment

Question 17

What is the price mechanism

Answer 17

Price mechanism refers to the system where the forces of demand and supply determine the prices of commodities and the changes therein. It is the buyers and sellers who actually determine the price of a commodity.

Question 18

Explain how market-based policies can be used to address market failure in relation to environmental management.

Answer 18

Market failure occurs when the price mechanism does not show the impact of externalities on the environment. Market-based policies help ensure that all social costs and benefits are incorporated in the market price and hence that production and consumption decisions reflect these social costs and benefits. In turn, this more accurately reflects the impact of production and consumption on the environment, which is more likely to encourage better environmental outcomes.

Question 19

Australia’s budget deficit is projected to decrease from 2.5% of GDP to 2.1% of GDP. Explain ONE possible reason for this change.

Answer 19

Australia’s budget deficit as a proportion of GDP is projected to decrease due to reductions in government expenditure, such as on paid parental leave or foreign aid.

Question 20

Compare the impact of TWO different methods of financing a budget deficit on domestic interest rates in the Australian economy

Answer 20

Two methods of financing a budget deficit are borrowing from the Reserve Bank or borrowing from the private sector. Borrowing from the RBA involves the RBA creating an increase in the money supply and loaning these funds direct to the government. Borrowing from the private sector involves “selling” new Commonwealth Government securities to the private sector. Borrowing from the private sector does not directly impact interest rates. However it may increase interest rates indirectly. This is because of increased competition for limited funds available in the domestic market. In contrast, borrowing from the RBA may have inflationary consequences due to the additional money supply in the domestic economy. This could lead to increased interest rates as the RBA seeks to maintain the inflation target.

Question 21

Analyse how ONE possible strategy to reduce the budget deficit could affect income distribution

Answer 21

One strategy to reduce the budget deficit is to increase the GST. Other things being equal, increasing the GST would increase government revenue and reduce the budget deficit. The GST is a regressive tax because it is a flat rate on all taxpayers and lower income earners spend a higher proportion of income. Raising the GST would increase the relative burden of taxation on lower income households therefore increasing income inequality.

Question 22

A country’s economy is operating at the non-accelerating inflation rate of unemployment (NAIRU). What are the policy implications of this for the country’s government if its aim is to reduce unemployment?

Answer 22

At the NAIRU an economy is operating with zero cyclical unemployment (ie full employment). This means any policy which aims to increase aggregate demand (eg expansionary fiscal policy) will increase inflation without reducing unemployment. Therefore, a government that aims to reduce unemployment must reduce structural or frictional unemployment. Government can do this by labour market reforms, which increase flexibility, mobility and skills in the labour market. This is potentially difficult for governments due to limitations such as time lags and political constraints.

Question 23

What is international division of labour

Answer 23

The international division of labour is when different nations specialise in different types of production and labour skills

Question 24

Explain TWO reasons why economies experience different levels of economic development.

Answer 24

There are many reasons for different levels of economic development between nations. One reason for different levels of economic development is natural resource endowment. Economies with larger quantities of resources use these resources to generate export income, which can be used to fund education and health. Economies with limited quantities of natural resources are unable to generate income to fund this development. Another reason for different levels of development is the differences in the quality of political and economic institutions. Some economies are supported by well-developed institutions, which protect property and investments and minimise corruption. In contrast, other economies have weak political institutions, which discourage the private and public investment necessary to fund development.

Question 25

Other things being equal, which of the following is most likely to increase if Australia’s major trading partners experience an economic slowdown? (A) Australia’s GDP growth (B) Australia’s unemployment rate C) Demand for Australia’s exports (D) Australia’s consumer price index

Answer 25

(B) Australia’s unemployment rate

Question 26

What is the most likely impact of an increase in the official cash rate on the domestic economy? (A) Lower inflationary expectations resulting from a depreciation of the domestic currency (B) Higher inflationary expectations resulting from an appreciation of the domestic currency (C) A redistribution of income and wealth towards those with a relatively high marginal propensity to save (D) A redistribution of income and wealth towards those with a relatively high marginal propensity to consume

Answer 26

C) A redistribution of income and wealth towards those with a relatively high marginal propensity to save

Question 27

An increase in which of the following is most likely to lower the non-accelerating inflation rate of unemployment (NAIRU)? (A) Official cash rate (B) Government spending (C) Infrastructure investment (D) Use of centralised wage bargaining

Answer 27

(C) Infrastructure investment

Question 28

Explain how removal of a subsidy might promote greater efficiency in an economy.

Question 29

Discuss the likely impacts on government revenue and expenditure of removin a subsidy.

Answer 29

Subsidies can impact on both the revenue and expenditure side of the government budget. Removal of the subsidy will reduce government expenditure and, other things being equal, increase a budget surplus or reduce a budget deficit. However, in removing the subsidy, the government may decide to allocate funds to help workers who lose their jobs retrain and find new jobs in other industries. Removing the subsidy, therefore, may increase government spending in the short term. On the revenue side, to the extent that the removal of the subsidy encourages more private sector investment in more efficient industries, this should result in an increase in government taxation revenue over the long term. More efficient industries will generate greater profit and, therefore, pay more company tax

Question 30

What is a private benefit

Answer 30

Private benefits include profits made by the producers in the selling of goods and services and the utility gained by consumers through consumption

Question 31

What is a social benefit

Answer 31

Social benefits are the positive spillover effects of private production on the community/society eg shopping complex car park

Question 32

Explain an advantage and a disadvantage of international environmental agreements in addressing environmental sustainability in the global economy.

Answer 32

International agreements such as the Kyoto protocol have an important role in promoting environmental sustainability within the global economy by coordinating action across all members. Recognising that the global climate is a public good, greater participation reduces the risk of free-riding thus reducing the ‘tragedy of the commons’. On the other hand it may be difficult to enforce an international agreement especially with more powerful economies. As a result countries may not abide by the terms of the agreement making it less effective.

Question 33

What is the trade-weighted index

Answer 33

The Trade Weighted Index refers to a measure of the AUD against a basket of the currencies of Australia’s major trading partners. The weighting is according to the importance of trade between Australia and the other nations.

Question 34

Explain how a decrease in an economy’s Trade Weighted Index may affect the level of inflation in that economy.

Answer 34

The Trade Weighted Index refers to a measure of the AUD against a basket of the currencies of Australia’s major trading partners. The weighting is according to the importance of trade between Australia and the other nations. A decrease in the TWI is likely to be reflected through a depreciation of the AUD against the currency of these countries. The depreciating Australian dollar will increase the cost of imports, and domestic businesses dependent on imports will have higher costs. Other things being equal, the imported goods from these countries coming to Australia are likely to increase in price as a result of the decrease in the TWI. Given the rise in prices, imported inflation is likely to rise.

Question 35

Assess the impacts of a depreciation in the Australian dollar on the level of employment in Australia.

Answer 35

A depreciation of the AUD could impact significantly on employment in Australia. A depreciation of the AUD refers to the value of the AUD falling against another currency. As a result, the demand for Australian exports should increase as the price of exports in foreign currency will fall due to the weakening of the AUD. Demand for labour is derived and the growth of export markets should result in increased employment in the Australian economy. Industries such as Australian-based education and tourism could benefit. Australian industries relying on imported components face higher prices for the imported goods. This could result in increased costs of production for the domestic industries and a reduction in employment growth across these industries.

Question 36

Explain how changes in the MPC can affect an economy’s growth.

Answer 36

The MPC measures the amount of each extra dollar of income that is spent. A decrease in the MPC means that an economy will tend to be saving more and spending less. A decrease in the MPC also represents an increase in leakages in an economy that results in a reduction in the size of the economy’s multiplier. Each dollar spent in an economy is someone else’s income, which they then re-spend. Therefore, if people spend a lower proportion of each dollar of income, they will spend less, and someone else’s income will be lower and they too will spend less (not just because they are saving more but also because they have less income). A lower MPC therefore means that other things being equal, any increase in the components of aggregate demand will result in a smaller increase in national income.

Question 37

Explain how changes in both aggregate demand and aggregate supply influence economic activity.

Answer 37

Aggregate demand is a primary driver of economic activity. An increase in aggregate demand results from increases in consumption, investment, government spending or net exports. Aggregate supply represents the total volume of an economy’s output over a given period of time. The interaction of aggregate demand and aggregate supply influences the level of economic activity. If demand increases and supply does not then increased economic activity may be accompanied by inflationary pressures that could limit growth. Improvements in an economy’s production efficiency are reflected in an increase in aggregate supply. This could stimulate long-term economic growth of an economy implying higher levels of economic activity (and low inflation) in the future.

Question 38

What is local content rules

Answer 38

local content rules help domestic producers compete against cheap foreign imports by requiring that a minimum proportion of production inputs be bought from the local producer rather than from overseas.

Question 39

What is direct investment

Answer 39

Direct investment covers financial transactions to fund new investment or to buy a controllin interest (typically more than 10%) of an existing company.

Question 40

What is portfolio investment

Answer 40

Portfolio investment involves buying shares or other securities in existing companies.

Question 41

Contrast the use of fiscal policy for an economy at the non-accelerating inflation rate of unemployment (NAIRU) with its use when the economy is above the NAIRU

Answer 41

At the NAIRU, there is no cyclical unemployment and so, if unemployment is to be reduced, fiscal policy needs to address the issue of increasing aggregate supply. This could be done by implementing policies aimed at education and/or the retraining of workers who do not have the necessary skills. By improving the skills of the working age population, this may increase labour force participation and reduce the burden of structural unemployment. Above the NAIRU, there is cyclical unemployment and this can be reduced by increasing aggregate demand. This can be achieved by increasing government spending on any of the components of aggregate demand (consumption, investment). As labour is a derived demand, stimulating demand and growth will increase the need for labour and reduce unemployment.

Question 42

Explain the effects of low wage growth on the Australian economy.

Answer 42

Low wage growth will reduce real household income which is likely to lead to lower consumption by households. This will reduce aggregate demand. Reduced household spending may also discourage production and investment by firms. This will reduce aggregate demand even further.

Question 43

Why might it be difficult to implement microeconomic reform during a period of low economic growth?

Answer 43

Microeconomic reform typically involves long-term benefits and short run costs (higher structural unemployment). During periods of low economic growth the newly unemployed will find it harder to find jobs. Governments may therefore be reluctant to undertake such reforms.

Question 45

Residents in a country town experience a significant slow-down in the speed of their internet service as a result of a large increase in usage from newly-connected households. The slower internet speed is most likely a result of A. free riding. B. rivalry in consumption. C. non-excludability in usage. D. the internet being a public good.

Answer 45

B. rivalry in consumption.

Question 46

8 Country A’s Lorenz curve is closer to the line of perfect equality than Country B’s Lorenz curve. All other things being equal, which of the following is true? A. Country A has a larger Gini coefficient than country B. B. Country B has a more equitable distribution of income than country A. C. Country A’s Lorenz curve will move closer to country B’s Lorenz curve if country A’s top marginal income tax rate is decreased. D. Country B’s Lorenz curve will move closer to country A’s Lorenz curve if country B’s top marginal income tax rate is decreased.

Answer 46

C. Country A’s Lorenz curve will move closer to country B’s Lorenz curve if country A’s top marginal income tax rate is decreased.

Question 47

Which of the following statements about government regulation is most correct? A. All government regulations reduce efficiency. B. Regulations restricting the behaviour of firms can increase efficiency. C. Microeconomic reform requires the removal of government regulation. D. Government regulations restrict the entry of transnational corporations.

Answer 47

B. Regulations restricting the behaviour of firms can increase efficiency.

Question 48

In Australia, returns to enterprise typically represent a lower proportion of household income than returns to labour because A. the company tax rate is higher than some marginal personal income tax rates. B. lower interest rates have significantly reduced household income from interest. C. most workers are employed by firms and many family businesses make a loss or small profit. D. households usually comprise at least one worker and most workers are employed by large firms.

Answer 48

C. most workers are employed by firms and many family businesses make a loss or small profit.

Question 49

For a particular country, the underlying inflation rate is greater than the headline inflation rate. This is most likely to have been caused by a significant A. reduction in electricity production. B. expansion in global oil production. C. depreciation of the domestic currency. D. increase in the country’s minimum wage.

Answer 49

B. expansion in global oil production.

Question 50

Country A and country B have flexible exchange rates and are considering forming a monetary union. Country A is currently experiencing a recession while country B is currently experiencing a boom. Which of the following is most likely to be true immediately after country A and country B form the monetary union? A. Imported inflation will be lower in country B. B. It will be cheaper for foreign tourists to visit country A. C. It will be cheaper for foreign firms to acquire assets in country B. D. The international competitiveness of country A’s exporters will increase.

Answer 50

It will be cheaper for foreign firms to acquire assets in country B

Question 51

Increased efficiency is a rationale for microeconomic reform. Define efficiency in this context

Answer 51

Efficiency is producing more output with a given level of inputs.

Question 52

Explain how labour market reforms can help government achieve the objectives of full employment and price stability in the long term

Answer 52

Reforms such as deregulation of the labour market should help achieve full employment by making workers more affordable to firms and more mobile, ensuring that they can easily be re-allocated from declining to growing industries. Deregulation of the labour market can also help price stability by reducing the bargaining power of workers in negotiating wages and conditions. This reduces the pressure on firms to raise product prices.

Question 53

Explain how Australia has contributed to the process of globalisation.

Answer 53

Globalisation involves the increased integration of national economies into the global marketplace. Australia has contributed to this process by following a free trade agenda with other countries including unilaterally reducing its own import tariffs as well as establishing free trade agreements with countries such as China and the US. This has resulted in increased bilateral trade flows between Australia and its trading partners. Australia has also contributed to increased financial flows around the world by deregulating financial markets and permitting foreign banks to operate in the domestic market.

Question 54

Explain the relationship between net foreign debt and net foreign liabilities.

Answer 54

Net foreign liabilities are the sum of net foreign debt and net foreign equity. Other things being equal, an increase in net foreign debt will increase net foreign liabilities.

Question 55

Assess the extent to which the move towards free trade restricts the Australian Government’s ability to achieve its economic objectives of full employment, distribution of income and external stability.

Answer 55

* ‘Assess the extent to which’ make a judgement as to the size and nature of the impact of free trade policies on Australia’s full employment, income distribution and external stability objectives. * Can discuss free trade policies by Australian Government as well as free trade policies by Australia’s trading partners. * The decline of Australian manufacturing (textile, clothing, footwear and motor vehicle industries) following reduction in tariff protection. * Impact on structural unemployment due to greater import competition. * Free trade may lead to increased income and wealth inequality; wages decline in uncompetitive industries while wages increase in internationally competitive industries. Extent of this impact depends on nature of government redistributive policies such as taxes, subsidies, social security payments etc. * Reduced import restrictions make it easier to import – can lead to worsening of current account deficit. • Free trade more closely integrates the Australian economy with the international business cycle. This may be positive if major trading partners are growing or negative if major trading partners are slowing. * Microeconomic reform has helped cushion the effects of free trade: – eg allowing workers to move from declining (ie internationally uncompetitive) industries to growing industries with significant international demand (eg mining) – eg floating Australian dollar; appreciation and depreciation influence Australian inflation and international competitiveness of Australian industries. * Benefits of free trade – concentrate resource use in industries with a comparative advantage. * Implications for foreign investment: fewer import restrictions may encourage foreign investment or discourage it (exporting to Australia easier). * Impact of free trade agreements on economic objectives. * Deregulation of financial services sector has reduced cost of borrowing – implications for economic objectives such as greater economic growth (and hence employment), greater household debt and greater foreign debt. Also impact on distribution of income (different capacities of consumers to borrow) and price stability through asset prices.

Question 56

Evaluate the success of government policies designed to achieve environmental sustainability in Australia.

Answer 56

* Definition of environmental sustainability: – market failure, externalities, free-riding – renewable and non-renewable resources • Rationale for government intervention in environmental policy * Federal, state and local government policies: – regulatory policies – eg clean air and water legislation, zoning, pollution laws, national parks – market based policies – eg tradable permits (eg water rights), taxes, recycling, subsidies and rebates – environmental targets – global environmental agreements * Environmental issues: – climate change – depletion of natural resources – pollution * Disagreement about extent of issues * Criteria by which to evaluate success of policies: – too early to judge success – extent to which policy has achieved stated goals – political support and trade-offs required – enforcement of regulations – success of implementation.

Question 57

Which policy in Australia is least likely to be influenced by political constraints? A. Fiscal B. Monetary C. Labour market D. Microeconomic

Answer 57

B. Monetary

Question 58

Which of the following is most likely to be the cause of a rise in the participation rate? A. More people are retiring earlier B. More parents are returning to the workforce C. More unemployed people are joining the defence force D. More students are choosing to continue with further education

Answer 58

B. More parents are returning to the workforce

Question 59

The central bank of a hypothetical economy reduces the cash rate. All other things being equal, what is the likely effect of this action? A. A decrease in consumer expenditure B. An increase in the rate of unemployment C. An appreciation of the economy’s exchange rate D. An increase in the price of assets in the economy

Answer 59

D. An increase in the price of assets in the economy

Question 60

Which of the following is an example of a fiscal policy that is both contractionary and discretionary? A. Decreased tax-free threshold B. Increased infrastructure spending in rural regions C. Increased spending due to unexpectedly higher unemployment D. Decreased unemployment expenditure due to higher than forecasted economic growth

Answer 60

A. Decreased tax-free threshold

Question 61

Explain the effects of a depreciating Australian dollar on accounts within the Balance of Payments.

Answer 61

Depreciation of the Australian dollar will initially make imports more expensive worsening the BOGS. In the long run however this will improve the international competitiveness of our exports as it will require less of foreign currencies to purchase the same amount. Domestic consumers will also switch to domestic goods and services due to the cost factor. Depreciation will make Australian assets cheaper to purchase and hence increase capital inflow (financial account of the BOP), although this may not be the case if further depreciation is expected. Depreciation will also make servicing our debts that are denominated in other currencies more expensive causing a larger debit in the primary income.

Question 62

Explain the limitations of using monetary policy for economic management of the Australian economy

Answer 62

There are time lag issues. While implementation time lag in using monetary policy is short (changes can be made at 11 possible times within the year) there is a medium term effectiveness (impact) lag with proposed changes taking approximately 9–18 months to progress through the various transmission channels of the Australian economy. Another limitation of monetary policy as a macro tool is that it can’t address objectives simultaneously (trade-off in objectives). For instance, maintaining price stability may come at the cost of full employment. RBA will also need to consider global interest rate differentials in order to minimise negative effects of the current/proposed rate.

Question 63

Discuss the effects of sustained budget deficits on economic growth and external stability in the Australian economy. In your response, refer to the economic information provided.

Answer 63

* Discuss: Identify issues and provide points for and/or against, the impacts of the deficits on economic growth and external stability * Fiscal policy definition * Budget deficit definition * Rationale for deficit ie, GFC 2008 • Economic growth – Continuous economic growth since early 90s – Fiscal Stimulus (Keynesian) – AD = C + I + G + X – M – Multiplier * Cost of deficits on future growth, long-term speed hump on growth * External stability – Increased gross and net debt – Increased servicing cost – Borrowing from overseas to finance deficits – Crowding out effect * Assessment of current debt and fiscal situation relative to other countries to previous situation.

Question 64

Explain the causes and effects of unequal distribution of income and wealth in Australia.

Answer 64

* Definition of distribution of income and wealth * Measuring of income and wealth * Causes of inequality (eg gender, age, policies) – Sources of income and wealth (and variation within them) – Gender – Age – Education – Occupation – Family/household structure – Fiscal policy – GST, marginal rates of tax, social welfare – Monetary policy – redistribution effect – Microeconomic/labour market – enterprise bargaining, superannuation – Effect of income on wealth * Benefits of Inequality – Incentive effects – working harder/longer, acquiring skills, risk-taking – Geographic and occupational mobility – Accumulates savings (could boost investment leading to economic growth) * Costs of Inequality – Lower utility in lower income groups (and on average) – Higher government spending due to welfare spending – Increased tax burden – Social division – Relative poverty – Working poor – Poverty traps (marginalisation of labour) – Inequality of opportunity – Possible lower APC as rich tend to spend less (could reduce economic growth).

Question 65

Explain the effects of protectionist policies on both the Australian and the global economy.

Answer 65

* Basis of free trade (advantages/disadvantages) – Absolute/comparative advantage – Specialisation, reduced costs, greater output and growth, factor endowment, improved allocation of resources, improved efficiency – Nationalism, isolation * Protectionist policies/free trade – Infant industries, domestic employment, dumping, defence – Tariffs, subsidies, quotas, local content rules (use of diagrams) – Trading blocs/free trade agreements – EU, APEC, NAFTA, ASEAN – Bilateral and multilateral agreements * Effects of global protection on the Australian economy – Reduced export opportunities – Decline in economic growth – Decrease in income/wealth – Decreased employment – Increased production costs and overall prices – Inefficient allocation of resources – Structural change * Effects on the global economy – Reduced overall growth and stagnant wage growth – Increased global inequality – Misallocation of global resources – Global factor/product market failure

Question 66

Which statement about the time lags associated with government policies is most correct? A. Fiscal policy has a longer implementation lag than monetary policy. B. Microeconomic policies have a shorter impact lag than fiscal policy. C. Monetary policy has a longer impact lag than microeconomic policies. D. Microeconomic policies have a shorter implementation lag than monetary policy.

Answer 66

A. Fiscal policy has a longer implementation lag than monetary policy.

Question 67

An economy is experiencing high unemployment and an inflation rate below the central bank’s target rate. Which macroeconomic policy mix is best for this economy? A. Expansionary fiscal and monetary policy B. Contractionary fiscal and monetary policy C. Expansionary fiscal and contractionary monetary policy D. Contractionary fiscal and expansionary monetary policy

Answer 67

A. Expansionary fiscal and monetary policy

Question 68

Other things being equal, Australia’s international competitiveness would be improved by an increase in which of the following? A. Australian inflation B. Aggregate supply in Australia C. Australian government spending D. The value of the Australian dollar

Answer 68

B. Aggregate supply in Australia

Question 69

Which of the following is most likely to be included in a market-based policy for the management of air pollution? A. Fines for firms that pollute B. Firms buying and selling pollution permits C. Domestic regulation that forces firms to meet certain emission targets D. An international treaty that specifies emission targets and is legally enforceable

Answer 69

B. Firms buying and selling pollution permits

Question 70

Which of the following is most likely to occur if the Australian government finances a budget deficit by borrowing funds in the domestic money market? A. Upward pressure on interest rates B. Increased domestic money supply C. Depreciation of the Australian dollar D. A rise in the Australian government’s share of foreign debt

Answer 70

A. Upward pressure on interest rates

Question 71

Which of the following must have happened if there has been a movement in Australia’s Terms of Trade from 115 to 105? A. The value of Australia’s imports increased relative to the value of Australia’s exports. B. The value of Australia’s imports decreased relative to the value of Australia’s exports. C. The price of Australia’s imports increased relative to the price of Australia’s exports. D. The price of Australia’s exports increased due to an appreciation in the Australian dollar.

Answer 71

C. The price of Australia’s imports increased relative to the price of Australia’s exports.

Question 72

Which of the following correctly ranks, from largest to smallest, the sources of income as a percentage of Australian household income? A. Returns to labour, returns to enterprise, returns to land and capital, transfer payments B. Returns to labour, transfer payments, returns to land and capital, returns to the enterprise C. Returns to labour, transfer payments, returns to enterprise, returns to land and capital D. Returns to labour, returns to enterprise, transfer payments, returns to land and capital

Answer 72

B. Returns to labour, transfer payments, returns to land and capital, returns to the enterprise

Question 73

There is a downturn in the economy of a major importer of Australian goods and services. Which of the following is most likely to occur? A. A depreciation of the Australian dollar B. An appreciation of the Australian dollar C. A revaluation of the importer’s currency D. A devaluation of the importer’s currency

Answer 73

A. A depreciation of the Australian dollar

Question 74

In 2019, one US dollar buys 1.25 Australian dollars. In 2020, one Australian dollar buys 0.75 US dollars. Which statement is most correct? A. There is no change in the exchange rate between 2019 and 2020. B. Australian exports to the US are less expensive in 2020 compared to 2019. C. Goods imported from the US are more expensive in 2019 compared to 2020. D. For US investors, Australian assets are more expensive to buy in 2020 compared to 2019.

Answer 74

B. Australian exports to the US are less expensive in 2020 compared to 2019.

Question 75

A large agricultural property in Australia is sold to a foreign investor. Outline how this transaction can affect TWO components of Australia’s balance of payments.

Answer 75

CR on (capital and) financial account DR in current account.

Question 76

What does a Gini coefficient of 1 mean and what does a Gini coefficient of 0 mean

Answer 76

a GINI coefficient of 1 means perfect inequality whilst a GINI coefficient of 0 means perfect equality

Question 77

Analyse the implications of a decline in global economic activity for Australia’s economic policies.

Answer 77

* The nature of a decline in global activity, possible causes * Implications of a downturn could include impact on economic objectives eg – Lower or slower economic growth – Higher unemployment in affected industries – Effect on prices ie imported inflation, reduced demand and cost inflationary pressures – Effect on external stability ie Balance of Payments, international competitiveness, terms of trade, exchange rate – Effect on distribution of income – Effect on environmental sustainability * Identification of the relationship between a decline in global economic activity and the range of government policy responses including macroeconomic and microeconomic policies * Role of exchange rates in softening impact of external shocks and hence implications for government policy response * Macroeconomic policy – Fiscal: expansionary fiscal policy to stimulate aggregate demand, incentives for exporting and import competing industries, tax/transfer policy to offset distribution effects – eg provide support to workers who lose jobs in adversely affected sectors – Monetary: Expansionary monetary policy lower interest rates to increase aggregate demand. Impact on exchange rates, international competitiveness and capital inflow * Microeconomic policy Increasing aggregate supply to improve efficiency and impact on international competitiveness. This could be achieved by: – reducing domestic trade barriers – investment in infrastructure – labour market policies to improve competitiveness – trade policies to gain access to more overseas markets.

Question 78

Analyse the role that the Australian government’s economic policies play in achieving price stability in Australia

Answer 78

* Define price stability – inflation/deflation * Australia’s record of price stability (especially since late 1990s) * Post Global Financial Crisis record of low inflation * Positive and negative effects of inflation/deflation * Different causes of inflation in Australia – demand, cost, imported, inflationary expectations, asset price inflation (house prices) * Macroeconomic policy to address these different types of inflation: – monetary policy: record low interest rates, RBA targets inflation rate of 2–3%, emphasis on RBA independence – RBA policy: rates have been raised (eg after GFC) and reduced (during GFC) – fiscal policy – impact of exchange rates on inflation – minimal interference in forex markets * Microeconomic policy (cost push inflation): – microeconomic reform to increase efficiency shifts in aggregate supply, competition policy, reduce capacity constraints – reducing domestic trade barriers – labour market policies to control wage inflation (eg workplace agreements) * Factors other than government policy that have affected price stability in Australia: – technological progress – globalisation – international business cycle (eg GFC increased uncertainty and hence increased Australian household saving) – oil (and commodity) prices – natural events (drought etc) – international political events – asset prices (house prices).

Question 79

With reference to BOTH Australia AND one other economy, compare and contrast the effects of globalisation on economic growth and environmental sustainability

Answer 79

* Define globalisation * Define objectives of economic growth and environmental sustainability * How have each of the following components of globalisation affected economic growth AND environmental sustainability in Australia and China: – trade in goods and services – financial flows – investment and TNCs – technology, transport and communication – international division of labour, migration – distribution of income and wealth – international business cycles – international organisations – trade agreements • Compare and contrast (in Australia and one other economy) effects of globalisation on: – preservation of natural environments – pollution, climate change – depletion of renewable and non-renewable resources – impact of international environmental agreements * How policymakers in Australia and one other economy have responded to globalisation * Compare and contrast how policymakers in Australia and one other economy have managed the trade-off between economic growth and environmental sustainability.

Question 80

Explain how labour market policies can be used to achieve Australia’s economic objectives.

Answer 80

* Define labour market policies: – role of labour market policies – the national system for determining minimum employment standards, minimum wages, awards, enterprise agreements, employment contracts – dispute resolution – centralised vs decentralised methods of determining employment contracts – education, training and employment programs * Explain how these can be used to achieve the economic objectives listed below * Define economic objectives: – economic growth and quality of life – full employment – price stability – external stability – distribution of income * Demand and supply model analysis of how labour market policies can achieve the economic objectives listed above * Data on Australia’s labour market policies and Australia’s performance with respect to its economic objectives.

Question 81

What was rudds stimulus package

Answer 81

This was a package made when the GFC came out to deal with it. This was a 40 billion dollar package that gave 1 gfrand for each child under 18 to help with costs, 3 million homes were given free ceiling insulation and solar hot water rebate was increased. 1000 schools will be build or upgraded and 900 million dollars in road projects.

Question 82

What was the commodity boom in the mid 2000s

Answer 82

This boom was driven by very large increases in the prices of some of Australia's commodity exports. These commodities being iron and coal etc. This was because global demand for this commodities increased and supply was unable to keep up. The government invested 10% of its GDP (120 billion) into the mining industry to keep up with demand. This overall increased the terms of trade, Increased demand for workers and higher wages, increased the government revenue, increased the overall shareholder profits.

Question 83

What has the corona fiscal budget plan be

Answer 83

This economic support package consisted of 260 billion dollar investment in the economy consisting of 13% of annual GDP. It gave a tax relief to bottom - mid income earners increasing AD and consumption, company tax rate lowered for companies that turnover less that 50 million dollars per year, investing 1 billion dollars into the ATO to make sure multinational companies pay the taxes that they owe.

Question 84

What is a debit and credit

Answer 84

debit = inflow credit = outflow

Question 85

What is the current account made up of

Answer 85

It is made up of net goods and services, net primary account which is interest paid or received on assets, secondary income which is made up of foreign aid and things you don't get return for

Question 86

What does the capital accont consist of

Answer 86

capital transfers, foreign aid grants, copyright, trademarks

Question 87

What does the financial account consist off

Answer 87

THis is transactions in assets and liabilites made up of direct investment, portfolio investment, financial derivatives, reserve assets and other investments