Reference no: EM131260477 , Length: word count:2800

BUS702 Economics Final Exam 2016

Multiple Choices Questions -

Q1. If inflation in Ireland was running at 1.5% p.a. and the Government offered public servants a pay increase of 2.1%, then this would represent a real pay

(a) increase of 0.6%.

(b) decrease of 0.6%.

(c) increase of 3.6%.

(d) decrease of 3.6%.

Q2. In national income accounting, the term "investment" refers principally to the activity of the

(a) household sector.

(b) business sector.

(c) government sector.

(d) foreign sector.

Q3. An economy which is experiencing stagflation has a

(a) high rate of unemployment and a low rate of inflation.

(b) low rate of unemployment and a low rate of inflation.

(c) low rate of unemployment and a high rate of inflation..

(d) high rate of unemployment and a high rate of inflation.

Q4. A yield curve shows the relationship between

(a) unemployment and inflation.

(b) return on a financial asset and time to maturity.

(c) interest rates and the level of government debt.

(d) economic growth and inflation.

Q5. In the expectations-augmented version of the Phillips curve, curves further to the right are drawn for a higher expected rate of

(a) unemployment.

(b) government debt.

(c) inflation.

(d) economic growth.

Q6. If the labour force participation rate were to fall but the number of people in work remained constant which of the following is true?

(a) The unemployment rate would fall.

(b) The unemployment rate would rise.

(c) The unemployment rate would remain the same.

(d) All of the above are possible.

Q7. According to standard Keynesian analysis, in an economic boom, the government should decrease

(a) its deficit.

(b) income taxes.

(c) interest rates.

(d) the rate of GST.

Q8. C is consumption, S is savings, I is investment, G is government purchases, T is taxation, X is exports and IM is imports. Which of the following are all leakages from the circular flow of income economy?

(a) S, G and X.

(b) S, T and X.

(c) S, T and IM.

(d) T, IM and C.

Q9. Suppose that in Australia and China, 1 unit of labour can produce the quantities of steel and timber as shown in the table below. Which of the following statements is true? You may like to do some working in the table to assist reaching your conclusion..

Output of 1 unit of labour			Opportunity cost of 1 unit of good
	Australia	China		Australia	China
Steel	16	32	Steel
Timber	18	24	Timber

(a) Australia has an absolute advantage in the production of steel and timber

(b) Australia has a comparative advantage in the production of timber

(c) China has a comparative advantage in the production of steel and timber

(d) China has a comparative advantage in the production of timber.

Q10. The demand for a good such as tobacco, to which some people are addicted, and which other people never use, tends to be

(a) relatively inelastic.

(b) relatively elastic.

(c) of unit elasticity.

(d) perfectly elastic.

The diagram below illustrates the imposition of a per unit tax in a perfectly competitive market. Use it to answer questions 11, 12 and 13.

Q11. The reduction in consumer surplus as a result of the tax is

(a) E₁E₂F

(b) E₁E₂CP*

(c) FE₂CP*

(d) AFP*B

Q12. The deadweight loss due to the imposition of the tax is given by the area of

(a) AE₁E₂

(b) AE₂CB

(c) FE₂CP*

(d) AFP*B

Q13. The amount of the tax borne by producers is given by the area of

(a) AE₁E₂

(b) AE₂CB

(c) FE₂CP*

(d) AFP*B

Q14. If the exchange rates for the Australian dollar against the Japanese Yen and the New Zealand dollar are JPY 100 and NZD1.05, then how many Yen to the NZD? (Answer to the nearest Yen.)

(a) 5

(b) 11

(c) 95

(d) 105

Q15. If this country's government taxed income using a progressive income tax scale similar to the current scale in Australia, then the after-tax Gini coefficient would be

(a) exactly the same as the before-tax Gini coefficient.

(b) less than the before-tax Gini coefficient.

(c) greater than the before-tax Gini coefficient.

(d) almost 0.

Short Answer Questions -

Q16. A CPI Table for Brisbane is

	CPI All groups  Brisbane
Sep-1980	48.5
Sep-1981	53.2
Sep-1982	59.2
Sep-1983	64.9
Sep-1984	67.8
Sep-1985	72.6
Sep-1986	78.5
Sep-1987	84.5
Sep-1988	90.6
Sep-1989	97.6
Sep-1990	102.8
Sep-1991	106.1
Sep-1992	106.9
Sep-1993	109.9
Sep-1994	112.5
Sep-1995	117.9
Sep-1996	120.6
Sep-1997	120.7
Sep-1998	122.5
Sep-1999	124.0
Sep-2000	131.3
Sep-2001	134.2
Sep-2002	139.2
Sep-2003	143.3
Sep-2004	146.8
Sep-2005	150.9
Sep-2006	157.5
Sep-2007	161.7
Sep-2008	170.8
Sep-2009	174.1

(a) Suppose a fridge cost $1490 in Brisbane in September 2009 and $790 in September 1980. Over this period, what was the real change in price and does this mean the real price of a fridge has risen or fallen over time? Show your working.

Year	Nominal price	Price index	Real price	Real price difference	%difference
1980	790	48.5
2009	1490	174.1

(b) If the average retail price in Brisbane of a Snickers Bar in September 2009 is $1.80, what would have been the price in September 1980 dollars, if the real price has remained unchanged?  Show your working

Year	Nominal price	Price index	Real price
1980
2009	1.80	174.1

(c) If you were working in Brisbane in September 2009 and had a take-home pay of $800 per week, what would the equivalent nominal take-home pay have been in 1999 to put a person in the same real position? What would the equivalent nominal take-home pay have been in 1989 to put a person in the same real position? Show your working.

Year	Nominal pay	Price index	Real pay
1989
1999
2009	800.00	174.1

Q17. Christmas tree investment

Suppose a business person approaches you with the following Christmas tree production proposition with figures calculated on a per hectare (ha) basis. Estimate the net present value (NPV) of this investment using a 7% discount rate. On the basis of your analysis, would you be willing to invest if you had available funds? Why or why not?

Year	Activity	Amount ($/ha)
0	Purchase land	2000
0	Prepare land and plant trees	1500
1	Weed control	200
2	Thin the stand	300
3	Prune and shape trees	400
7	Net harvest revenue from the sale of mature Christmas trees	7200

Show your working

18. Fiscal and Monetary Policy

(a) Name the agency or institution responsible for (i) monetary policyand (ii) fiscal policy in Australia. (2)

(b) In Australia, the principal tool of monetary policy is the target cash rate (TCR). Give a definition of the TCR and state the two main factors that would need to be considered before the TCR was raised or lowered.

(c) What effect on the money supply would an open market sale of government bonds have?

(d) According to standard Keynesian analysis, how should a fiscal contraction affect GDP and unemployment?

(e) In 2008, Christina Romer, President Obama's chief economic advisor, estimated the fiscal multiplier for the USA to be about 1.6.If, at that time, the Federal Government of the USA had estimated that GDP was $400 billion below its potential, by how much would it need to increase government spending to restore the economy to full employment, if Professor Romer's estimate of the multiplier was correct.

Q19. Media Article 1

The following four questions refer to the article Appetite for house price rises outstrips concern for equity, by John Quiggin (article reprinted at the end of the exam paper)

a. The Coalition Government claims Labour's policies to scrap negative gearing on existing investment homes (but not new investment homes), and to reduce the generosity of the capital gains tax concession on investment properties, will drive down house prices. Illustrate with a supply and demand diagram and describe with reference to your diagram the basis for the Coalition Government's claim.          

b. No doubt some "Mortgagors have bet heavily on the assumption that house prices will continue to rise". Suppose Labour was elected in 2016 and their housing policy changes are implemented and do result in falling house prices, as you illustrated above. Describe how this may potentially affect investors who are relying on capital gains to make their investment financially viable. Then in your supply and demand diagram for (a), illustrate and describe how the presence of these investors could exacerbate the house price fall brought about by the housing policy change.

c. "Surely everyone supports more affordable housing. In fact, as Abbott is clearly aware, the opposite is true". If they were elected in the 2016 federal election, the Labour Party is promising to modify housing policy (negative gearing and capital gains tax concessions) to reduce upward pressure on housing prices. Explain why for decades federal Labour and Liberal Party policies on housing have promoted less affordable housing. 

d. Multiple Choice: Select one out of the four options.

According to John Quiggin, increasing unaffordability of housing in Australia is due to (2):

(a) Informational asymmetries

(b) The public good nature of housing

(c) Government failure

(d) Externalities of housing

20. Media Article 2

The italicized quotes below are taken from the article, "Crunch time for Australia's car makers", which appeared in Business Day on February 12^th 2012 (article reprinted at the end of the exam paper). The quotes have also been underlined in the article to make them easy to find. Answer the questions that follow each quote.

(a) Under the system of tariffs on imported cars and hefty subsidies for the local industry, car buyers are effectively paying twice. I suggest using diagrams to aid in each of your explanations for i and ii.

(i) Explain how a tariff raises the price paid of a locally produced car. Who gains and who loses?

(ii) Explain how a subsidy reduces the price of a locally produced car. Who gains and who loses?

(b) ''Every country that has successfully industrialized has done so with some involvement of government policy and by favoring local manufacturing,'' he said.

(i) This looks like the "infant industry" argument. Did it (or does it) apply in the case of the Australian car industry?

(ii) What would you recommend the Federal Government do about its broader Industry Assistance Programme? Justify your advice with economic rather than political arguments.

Attachment:- Assignment.rar