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STUDENT NUMBER/NAME: ……………………..

2017

Higher School Certificate

Art of Smart Mock Examination

Economics

General Instructions

Reading time – 5 minutes

Working time – 3 hours

Write using black pen

Board approved calculators may be

used

Write your student number and/or

name at the top of every page

Total marks – 100

Section I – Pages 2–9

20 marks

Attempt Questions 1–20

Allow about 35 minutes for this section

Section II – Pages 10–17

40 marks


Allow about 1 hour and 15 minutes for this

section

Section III – Pages 18–19

20 marks

Attempt either Question 25 or Question 26


Section IV – Page 20

20 marks



This paper MUST NOT be removed from the examination room


Section I

20 marks



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 on the grid below.

A B C D

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20


S1

S1

S2

S2

0.75

0.70

0

Price of $A

in terms of $US

D2

D2

D1

D1

Quantity of $A

1 A British exporter of £200,000 personal hovercrafts has seen their order numbers

drastically increase (+20%) as a result of the British vote to leave the European Union

(Brexit). What could have caused this rapid increase in sales?

(A) An appreciation of the British Pound in relation to the EURO

(B) A depreciation of the British Pound in relation to the EURO

(C) An increase in economic growth in Europe.

(D) Changes to import duties on personal hovercrafts.

2 To achieve a higher level of environmental sustainability, which would be an appropriate

government policy decision?

(A) Impose a tax on firms that cause a negative externality.

(B) Pay a subsidy to firms that cause a negative externality.

(C) Impose a tax on all firms in the industry.

(D) Impose a tax on firms that cause a positive externality.

3 The following diagram shows changes in the demand and supply for Australian dollars in

the foreign exchange market.

Assuming a floating exchange rate, which of the following actions by the Reserve Bank

of Australia could have caused the exchange rate to move from $US0.75 to $US0.70?

(A) Buy Australian dollars and raise Australian interest rates.

(B) Buy Australian dollars and lower Australian interest rates.

(C) Sell United States dollars and raise Australian interest rates.

(D) Buy United States dollars and lower Australian interest rates.


4 The following table shows fiscal information for a hypothetical economy:

Government Expenditure ($m) Government Revenue ($m)

Year 1 80 99

Year 2 17 25

Year 3 130 120

Year 4 35 17

Ceteris paribus, which year is the Government engaging in the largest expansionary

stance?

(A) Year 1

(B) Year 2

(C) Year 3

(D) Year 4

5 What business practices are outlawed by the Competition and Consumer Act 2010 (Cth)?

(A) Monopolisation, Price Discrimination, Asset Recycling.

(B) Price Discrimination, Exclusive Dealing, Deregulation.

(C) Collusion, Market sharing, Money Laundering.

(D) Monopolisation, Exclusive Dealing, Collusion.

6 The diagram shows Australia’s exports by destination for the September Quarter of 2017.

Which of the following statements best describes trends in Australia’s trade pattern?

(A) Australia’s trade has shifted from European nations to all ASEAN countries.

(B) Australia’s trade with the US has increased significantly.

(C) China and India purchased more Australian exports in 2016 than in 2000.

(D) 20% of Australia’s exports (in terms of value) are now bought by Japan.


7 What changes will occur to automatic stabilisers during a sustained increase in the level

of economic activity?

(A) Welfare payments will increase and taxation revenue will decrease.

(B) Welfare payments will decrease and taxation revenue will increase.

(C) Welfare payments will decrease and taxation revenue will decrease.

(D) Welfare payments will increase and taxation revenue will increase.

8 The following diagram shows the effect of a tariff.

What effect does the imposition of the tariff have on imports?

(A) Imports increase from Q to Q1.

(B) Imports decrease from Q3 to Q2.

(C) Imports decrease from QQ3 to Q1Q2.

(D) Imports decrease from Q2 to Q1.

9 Contained in the question below are three statements that may be true or false.

The goals and objectives of the national wage system established by the Fair Work Act

2009 include:

I. raising the minimum wage

II. replacing enterprise agreements

III. increasing the number of awards

(A) I ONLY.

(B) I and II ONLY.

(C) I and III ONLY.

(D) ALL of the above.

Price

T = tariff price F = free trade price

S

S D

D

Q Q3 Q2 Q1 Q

F T

P


10 Which of the following is most likely to add to Australia’s Capital and Financial Account

Surplus?

(A) A decrease in dividends paid to Australian investors.

(B) A decrease in Australia’s foreign aid for international emergencies.

(C) An increase in funds borrowed by Australian banks from foreign lenders.

(D) An increase in money transferred from Australian migrants to their relatives

overseas.

11 Which of the following factors can restrict economic growth and development in

developing economies?

(A) High population growth rates, low per capita incomes and low levels of capital

accumulation

(B) Low population growth rates, high levels of foreign debt and high levels of capital

accumulation

(C) High levels of domestic savings, low levels of technology and high levels of

foreign direct investment

(D) Low levels of domestic savings, low per capita incomes and high levels of exports

12 The following table shows incomplete balance of payments information for a selected

country.

Selected Item in the Balance of Payments $ millions

Goods credits 14,000

Goods debits 15,000

Financial account 4,550

Net services X

Net income and transfers -6,100

Net errors and omissions 450

What is the value of X if the balance on the current account equals -$5,100 million

(A) Not enough information provided

(B) $2,000 million

(C) $1,000 million

(D) -$1,250 million


13 The table shows the Gini co-efficient for Country A and Country B over three years.

Year Country A Country B

1 0.70 0.60

2 0.75 0.55

3 0.80 0.60

(A) The Lorenz curve for Country A is moving closer to the line of perfect equality.

(B) The Lorenz curve for Country B is moving away from the line of perfect equality.

(C) The Lorenz curve for Country A is further away from the line of perfect equality than

the Lorenz curve for Country B.

(D) The Lorenz curve for Country B is further away from the line of perfect equality than

the Lorenz curve for Country A.

14 Which of the following is a bilateral trade agreement that Australia is a part of?

(A) CERTA

(B) NAFTA

(C) ASEAN

(D) AANZFTA

15 If a country is experiencing a financial crisis how can it best seek international assistance?

(A) Participate in World Trade Organisation negotiations to reduce trade barriers.

(B) Apply to the World Bank for a development loan.

(C) Seek emergency liquidity support from the International Monetary Fund.

(D) Raise the issue at a meeting of the United Nations.


16 The following table shows a change in the value of the Australian dollar against the US

dollar.

Year Terms of

Trade

Current Account

Balance (% GDP)

Net Foreign

Debt (% GDP)

1 114 -2.9 40%

2 118 -2.4 46%

3 103 -5.3 49%

Which of the following statements can be ascertained about this economy from the data

above?

(A) The currency appreciated against major trading partners in Year 3.

(B) The current account balance is influenced by the value of the currency.

(C) The level of foreign debt is the largest influence on the current account balance.

(D) The increased level of foreign debt is largely caused by the depreciation of the

currency.

17 A positive valuation effect:

(A) Increases the total value of a society.

(B) Decreases inflation in the domestic economy.

(C) Decreases the Australian dollar value of foreign debt borrowed in foreign

currencies.

(D) Increases the Australian dollar value of foreign debt borrowed in foreign

currencies.

18 Which of the following measures is likely to generate a more unequal distribution of

income among individuals in Australia?

(A) A decrease in the top rate of marginal income tax.

(B) Increased welfare payments.

(C) A decrease in the rate of fringe benefits tax.

(D) Higher minimum wage.


19 Which combination of actions does the Reserve Bank of Australia need to take in order to

implement an expansionary monetary policy?

20 The following diagram shows aggregate demand and aggregate supply curves for an

economy.

Which of the following factors could have caused the shift in the aggregate demand curve

from AD to AD1?

(A) A fall in market interest rates.

(B) An increase in the size of a government budget deficit.

(C) An increase in government spending on welfare.

(D) A fall in consumer and business sentiment.

Commonwealth

Government Securities

Supply of Cash in Exchange

Settlement Accounts

Interest Rates

(A) Buy Increase Decrease

(B) Buy Decrease Decrease

(C) Sell Increase Increase

(D) Sell Increase Decrease

Price level

Real GDP

AD1

AD1

AD

AD

AS

AS

0


Section II

40 marks


Allow about 1 hour and 15 minutes for this section

Answer the questions in the spaces provided. These spaces provide guidance for the expected

length of response.

Question 21 (10 marks) Marks

(a) The table below shows data for a hypothetical economy. 1

Year Consumer Price Index (CPI)

1 100

2 128

3 112

Calculate the inflation rate between Year 2 and Year 3.

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(b) Outline one positive effect and one negative effect caused by inflation on the economy. 2

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Question 21 continues on the next page


Question 21 (continued)

(c) Explain how inflationary expectations might affect inflation in an economy. ........................... 3

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(d) Examine how a high rate of wage-growth might affect both demand-pull and cost-

push inflation. ........................................................................................ 4

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End of Question 21



(a) Distinguish between macroeconomic policies and microeconomic policies. 2

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(b) Distinguish between microeconomic reform and structural change. 2

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(c) Discuss how microeconomic policies can be used to improve either the energy product

market or the labour factor market. ..................................................................................... 6

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End of Question 22



(a) Analyse a fiscal taxation strategy that could be used to reduce income inequality in the

Australian economy. 4

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(b) Analyse the impact of high levels of income inequality in a country other than Australia. 6

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End of Question 23



(a) The following table shows selected data for a closed economy. 2

State the formula for, and calculate the value of the simple multiplier using the

information in the table.

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(b) Using the above multiplier, calculate the total boost to an economy’s national income if

the government increased investment by $500 million. 1

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(c) Briefly outline why a country with a higher Marginal Propensity to Consume (MPC)

leads to a higher increase in income after an investment compared to a country with a

lower MPC. 1

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Question 24 continues on the next page


Question 24 (continued) Marks

(d) Briefly explain the effect of achieving ecologically sustainable development on

economic growth for the Australian government. 6

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End of Question 24


Section III

20 marks



Answer the question on your own paper or in a writing booklet, if provided. Start the question

on a new page.

The expected length of the response is approximately 800 words or six written pages.

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

Question 25 (20 marks)

Explain how the Reserve Bank of Australia implements monetary policy and the impact of

changing stances of monetary policy on the level of the exchange rate. In your response, you

should refer to the economic information provided.

Sources: Reserve Bank of Australia and Australian Bureau of Statistics.

OR




use the information provided

apply relevant economic terms, concepts, relationships and theory



Explain how signing up for more free trade agreements can both improve and deteriorate

various components on Australia’s Balance of Payments.

In your response, you should refer to the economic information provided.

Sources: Reserve Bank of Australia and Australian Bureau of Statistics.


Section IV

20 marks



Answer the question on your own paper or in a writing booklet, if provided. Start the question

on a new page.

The expected length of the response is approximately 800 words or six written pages.



apply relevant economic information, terms, concepts, relationships and theory



Analyse the role of microeconomic reform and fiscal policy in achieving the three main

objectives of the Reserve Bank of Australia (RBA).

OR


Analyse ONE microeconomic and TWO macroeconomic policy strategies that can be used to

reduce Australia’s Current Account Deficit and thus improve external stability.

End of paper

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