sem2exam2004yr11eco

8/7/2019 Sem2Exam2004Yr11Eco

http://slidepdf.com/reader/full/sem2exam2004yr11eco 1/18

Year 11 EconomicsSemester I Examination 2004

Name: _______________________________________________

Date: 22nd June 2004

Time: 11.50 a.m. – 2.00 p.m.

Duration: Two hours plus ten minutes reading time.You may make notes on your own paper during the reading time.

Instructions to Candidates

1. Answer all questions in the spaces provided in this booklet.

You will have 10 minutes to read the paper. You must not write in your script book or question booklet or on your multiple-choice answer sheet during this reading time butyou may make notes on the scribbling paper provided.

Approved dictionaries and calculators may be used.

Instructions for answering multiple-choice questions

• Complete your answers in either blue or black pen.

• Select the alternative J, K, L or M that best answers the question. Fill in the

response oval completelySample: 2 + 5 =

J. 2 K. 4 L. 7 M. 9

J. K. L. M.

If you think you have made a mistake, put a cross through the incorrect answer andfill in the new answer.

J. K. L. M.



Multiple Choice Answer Sheet

Candidate’s Name ________________________________________________

Q.1. J. K. L. M.

Q.2. J. K. L. M.

Q.3. J. K. L. M.

Q.4. J. K. L. M.

Q.5. J. K. L. M.

Q.6. J. K. L. M.

Q.7. J. K. L. M.

Q.8. J. K. L. M.

Q.9. J. K. L. M.

Q.10. J. K. L. M.

Q.11. J. K. L. M.

Q.12. J. K. L. M.

Q.13. J. K. L. M.

Q.14. J. K. L. M.

Q.15. J. K. L. M.



Multiple Choice Questions

(All Questions one mark each)

Q.1 In a planned economy, the question of ‘For whom to produce?’ is determined

primarily by

J. the sale of resources for income payments in competitive markets.K. the distribution of production to members of the community based on socialcustoms.L. government distributing goods and services to low-income earners.M. government centrally setting wages and prices as part of an economic plan.

Q.2 The economy represented in the following diagram is currently operating at pointF.

If the economy moves to point A, there is

J. no opportunity cost.K. an opportunity cost of 60 telephones.L. an opportunity cost of 40 fax machines.M. an opportunity cost of 60 fax machines.

Q.3 Under conditions of monopolistic competition

J. firms use both price and non-price competition.K. firms face a perfectly elastic demand curve.L. one firm dominates the market.M. barriers to entry are high.

Q.4 An economy that uses the market to allocate resources

J. ensures that resources are allocated according to the needs of consumers.K. ensures that consumers can buy whatever quantity they want.L. ensures equality of income for all consumers.M. uses prices to allocate resources.

Q.5 In a perfectly competitive market

J. firms advertise heavily to differentiate their products.K. firms are faced with a perfectly inelastic demand curve.L. there are high barriers to entry.M. all firms are relatively small in relation to the market and they are ‘price takers’.



Q.6 The diagram below shows two production possibility curves (PPCs) for aneconomy.Which of the following is true in relationto the diagram above?

J. The shift from A to B on PPC1represents improved technology.K. The shift from C on PPC2 to B onPPC1 represents increasedunemployment.L. The shift from B on PPC1 to C onPPC2 represents economic growth.M. The economy has more resources atB than at A.

Q.7 The following table gives the benefits and costs of four possible projects that areproposed for South Australia. If a cost–benefit analysis is used as the basis of economic decision-making, the project chosen by you, as Premier of South Australiawould be

Project Private Private External External

Benefits Costs Benefits Costs

$m $m $m $m

A 250 50 60 10

B 160 30 60 10

C 500 300 50 60D 400 200 60 60

J. Project A.K. Project B.L. Project C.M. Project D.

Q.8 An example of hidden unemployment occurs where

J. the skills of the unemployed do not match the skills required in available jobs.

K. workers have been laid off by factory closures.L. there is a rise in the rate of unemployment as the rate of inflation falls.M. the unemployed no longer seek work because of a deterioration in the job market.

Q.9 Which market structure is characterised by a few relatively large firms and highbarriers to entry?

J. OligopolyK. MonopolyL. Pure competitionM. Monopolistic competition



Q.10 A feature of pure competition is

J. barriers to entry facing new firms.K. homogeneous products.

L. wide variations in prices between firms.M. a limited number of producers with large monopoly power.

Q.11 The term ‘real wage’ refers to the buying power of the wage when

J. the inflation rate and tax rates are taken into account.K. the inflation rate is taken into account.L. the effect of interest rate changes is taken into account.M. tax rates and government transfer payments are taken into account.

Q.12 In a capitalist economy the question of how to produce is resolved primarily by

J. government regulations and controls.K. private producers who aim to minimise their production costs.L. households that aim directly to satisfy their wants.M. public sector firms that take social interest into account.

Q.13 The circular flow model shows

J. how all economic systems operate.K. how sectors of a market economy interact.L. that real flows are not equal to money flows.M. that most investment is carried out by households.

Q.14 Which government policy is likely to reduce the inequality of incomedistribution?

J. Decreasing the level of tax rates for high income earnersK. Increasing the tax-free threshold on incomeL. Increasing the level of tax on essential servicesM. Decreasing the level of tax on luxury items

Q.15 The diagramsbelow represent

changes in the foreignexchange market for Australian dollars.

All other things beingequal, which of thediagrams bestrepresents the initialimpact of a significantfall in exports?



Short Answer Questions

Q.1 What is the economic problem?

______________________________________________

_________________________________________ (1 mark)Q.2 What are the three fundamental questions that all economies must answer?In your response, outline how a “free market”, a “planned” and a “traditional”economy answer the fundamental questions differently.

______________________________________________ ______________________________________________ ______________________________________________ ______________________________________________

______________________________________________ ______________________________________________ ______________________________________________ ______________________________________________ ______________________________________________ ______________________________________________ ______________________________________________

________________________________________ (6 marks)

Q.3 What is meant by the term “economies of scale”? What are the benefits of economies of scale to General Motors Holden? Use a numerical example in your answer.

______________________________________________ ______________________________________________ ______________________________________________ ______________________________________________

______________________________________________ ______________________________________________ ______________________________________________ ______________________________________________ ______________________________________________ ________________________________________ (5 marks)



Going Green is in the Bag

A new survey shows that more Australians are refusing to use plastic bags

to carry their supermarket shopping and are making an effort to recycle.The first reusable shopping bag offered by one of Australia’s largestsupermarket chains was sold out ahead of its official launch. More than18,000 Green Bags — designed to carry the same amount as three plasticbags — were purchased nationally during their first week on sale.“If everyone shopping at these stores bought a Green Bag, we’d reducethe number of plastic bags being used by more than one billion a year — that would have real benefits for Australia’s environment,” stated JohnDee, of environment group Planet Ark.

Source: Adapted from the Sunday Mail , 16 March 2003, p. 13, accessed

from www.newstext.com.au

Q.4 (a) Using examples, distinguish between a private benefit and an external benefitof reusable shopping bags.

______________________________________________ ______________________________________________ ______________________________________________ ______________________________________________

________________________________________ (2 marks)

Q.4 (b) State two ways in which the government might encourage greater use of reusable shopping bags.

______________________________________________ ______________________________________________ ______________________________________________ ______________________________________________

________________________________________ (2 marks)



Q.4 (c) State how the following may limit the usefulness of the cost–benefit approachin deciding whether or not to introduce reusable shopping bags.

(i) Measurement.

______________________________________________

_________________________________________ (1 mark)

(ii) Time-frame.

______________________________________________ _________________________________________ (1 mark)

Q.5

Q.5 Using the concept of elasticity, explain the advantages for producers who

differentiate their product. Draw a diagram to support your answer.

______________________________________________ ______________________________________________ ______________________________________________ ______________________________________________ ______________________________________________ ______________________________________________

______________________________________________ ______________________________________________ ________________________________________ (4 marks)



Q.6

http://news.bbc.co.uk/1/hi/business/3719081.stm

Chinese banks told to sue debtorsChina's banks should sue the firms and people whose bad debts aredestabilising the banking system, the country's top financial regulator

says.

Liu Mingkang, head of the China BankingRegulatory Commission, used an AsianDevelopment Bank meeting in South Korea tourge his charges to "get tough".

"You have got to sue your customers, to enhance

a credit culture," he said.

Correspondents say the idea is anathema1 to Chinese bankers, despite bad debtsof more than $200bn.

According to international credit rating agency Standard & Poor's, non-performingloans at the four big state banks - between them holding 80% of loans - couldamount to more than 40% of the overall loan book. Most of the defaultingdebtors are state firms - and some are seniorindividuals in China's hierarchy and their families.In addition, China's legal system has a poorrecord when it comes to this kind of case.

Off the boil?

Mr Liu's urging forms part of the authorities'attempts to shift some of the imbalances inChina's breakneck expansion. 2003 saw theeconomy grow at 9.1%, with investment in fixed assets up 47% in the first threemonths of 2004 on the previous year. According to Stanley Fischer - formerInternational Monetary Fund number two and now vice-chairman of Citigroup -that spelled serious trouble for the bankingsystem. "It is inconceivable that those rates of investment can be efficient," he told investors atthe ADB meeting.

The distended2 state of the banking system is one result and needs to be fixedbefore 2007, when China's commitments to the World Trade Organisation mean ithas to open up much of the banking sector to foreign competition. It has alreadyinjected US$45bn into the Bank of China and the China Construction Bank.Another $65bn could be on the way to bail out the banks, the Observer said onSunday.

Q.6 (a) What is the crisis in China’s banking system? What is “guan xi” and how is itrelated to this crisis? Use examples from the article above in your response.

1 Totally unthinkable2 sick

Mr Liu is keen for banks tomodernise





______________________________________________ ______________________________________________ ______________________________________________

______________________________________________ ______________________________________________ ______________________________________________ ______________________________________________ ______________________________________________ ________________________________________ (5 marks)

Q.6 (b) How is the government of China attempting to improve the health of China’sbanks? Why is the Chinese government undertaking these actions? Use examplesfrom the article above in your response.

______________________________________________ ______________________________________________ ______________________________________________ ______________________________________________ ______________________________________________ ______________________________________________

______________________________________________ ______________________________________________ ________________________________________ (5 marks)

Q.7



China signals a yuan peg U-turn


China may loosen its exchange rate system,the official in charge of running the policyhas said.

China's leaders have resisted pressure from theUS, IMF and the G7 wealthy nations to end theyuan's peg to the dollar, until now.

"We don't think the fixed system is good. Wethink that a floating system is good," said Guo Shuqing in an interview with the

Financial Times. The peg - at 8.28 to the dollar - keeps China's exports cheap onworld markets. Mr Guo is director general of the State Administration of ForeignExchange, and deputy governor of the central bank, the People's Bank of China.

China's U-turn

The Bush Administration blames the currency peg for contributing to the loss of nearly 3 million US industrial jobs during the past four years. Republicans andDemocrats have stressed the issue as they slug it out to win the White House inNovember's presidential election.

China's leaders, including President Hu Jintao, have rejected the accusation thatthe currency peg is unfair, stressing the need for stability. However, Beijing

agreed to send a team to the US to study the technical aspects of a policy shiftlast autumn, and state newspapers have carried stories saying that officials werestudying the pros and cons of a change.

But it remains unclear if Beijing was seriously investigating a new policy ormerely seeking to defuse pressure.

Mr Guo said it was not clear if the yuan was undervalued, indicating that thecurrency would not necessarily appreciate when it is allowed to fluctuate morefreely, the newspaper said.

China's foreign exchange reserves rank among the largest in the world, at$440bn.

Speculative capital has poured into China, averaging $12bn a month in the firstquarter of 2004, as currency traders have bet on a yuan revaluation.

Q.7 (a) The Yuan is fixed at 8.28 Yuan = $US1. If a Chinese company exports aDVD player and sets the price at 400 Yuan for the DVD player, how much will theimporter in the USA pay?

______________________________________________ ________________________________________ (1 mark)

Q.7 (b) If the Yuan is “floated” and the currency settles at a new exchange rate of 7Yuan = $1 US, how much will the importer in the USA pay?



______________________________________________ ________________________________________ (1 mark)

Q.7 (c) The Bush administration has argued China has deliberately undervalued the

Yuan. Why would Hu Jintao undervalue the Yuan?

______________________________________________ ______________________________________________ ______________________________________________ ________________________________________ (2 marks)

Q.7 (d) “Speculative capital has poured into China, averaging $12bn a month in

the first quarter of 2004, as currency traders have bet on a yuan revaluation.”

Why would currency speculators buy the Yuan?

______________________________________________ ______________________________________________ ______________________________________________ ______________________________________________ ______________________________________________ ________________________________________ (2 marks)

Q.8 “City DVD” sell popular DVDs. They present you with the following data theyhave collected over the last six months. “P” refers to the price charged for a DVD;“Q” refers to the number of DVDs sold per week in the period indicated.

Price Quantity Revenue

$20.00 900 $18,000

$21.00 875 $18,375

$22.00 850 $18,700

$23.00 825 $18,975

$24.00 800 $19,200

$25.00 775 $19,375

$26.00 750 $19,500

$27.00 725 $19,575

$28.00 700 $19,600

$29.00 675 $19,575

$30.00 650 $19,500

$31.00 625 $19,375

Q.8 (a) Graph this data (see next page) (2 marks)Show the revenue lost and gained when price decreases from $29 to $28.



Price elasticity of demand is defined as

Q.8 (b) Calculate the price elasticity of demand for DVDs when the cost of a DVDfalls from

(i) $22 to $21

(ii) $31 to $30

(iii) $29 to $28

(3 marks)

(Q2 – Q1)

Q1

( )(P2 – P1)

P1( )



Q.8 (c) Advise the owners of “City DVD” on the optimum price for DVDs thatmaximises revenue for the business.

___________________________________________________ ___________________________________________________

___________________________________________________ ___________________________________________________ ___________________________________________________ _____________________________________________ (2 marks)

14



Q.9 What is “superannuation”? Why is the Australian Government increasingcompulsary superannuation to 12% of gross income by 1st July 2006? In your answer make reference to the Balance of Payments.

______________________________________________

______________________________________________ ______________________________________________ ______________________________________________ ______________________________________________ ______________________________________________ ______________________________________________ ______________________________________________

______________________________________________ ______________________________________________ ________________________________________ (3 marks)

Q.10

Main Features

April 2004

EMBARGO: 11:30 AM (CANBERRA TIME) 13/05/2004

APRIL KEY FIGURES (adapted) Mar 2004 Apr 2004 Mar 04 to Apr 04 Apr 03 toApr 04

TrendEmployed persons ('000) 9,632.2 9,653.7 21.5 2.1%Unemployed persons ('000) 580.3 579.2 -1.1 -7.6%Not in the labour force 5819.9 5831.3

Q.10 (a) What is meant by the term “labour force”?

______________________________________________

______________________________________________ _________________________________________ (1 mark)

Q.10 (b) Calculate the unemployment rate from the data for April 2004

______________________________________________ ______________________________________________ _________________________________________ (1 mark)

15



Q.10 (c) Calculate the labour force participation rate from the data for April 2004

______________________________________________ ______________________________________________ _________________________________________ (1 mark)

Q.10 (d) What is meant by the term “labour force participation rate”?

______________________________________________ ______________________________________________ _________________________________________ (1 mark)

Main Features Mar 2004

6401.0 Consumer Price Index,AustraliaEMBARGO: 11:30 AM (CANBERRA TIME) 28/04/2004

MARCH QTR KEY FIGURES

% change % changeDec Qtr 2003 to Mar Qtr 2003 to

Weighted average of eight capitalcities

Mar Qtr 2004 Mar Qtr 2004

Food 1.8 3.3Alcohol and tobacco 1.1 4.2Clothing and footwear -1.4 -0.8Housing 0.9 4.3Household furnishings, supplies andservices

-0.6 0.2

Health 3.2 6.5Transportation 0.7 -1.4Communication 0.1 1.1Recreation -1.1 -2.0Education 7.6 7.8Miscellaneous 1.3 3.0

All groups 0.9 2.0

All groups excluding Housing 0.9 1.4

Q.11 (a) What was the inflation rate in the year ending 30th March 2004?

______________________________________________ _________________________________________ (1 mark)

Q.11 (b) What is meant by the term “weighted average” and how does this apply inthe calculation of the Consumer Price Index?

______________________________________________ ______________________________________________

16



______________________________________________ ______________________________________________ ______________________________________________

______________________________________________ ______________________________________________ ______________________________________________ ______________________________________________ ______________________________________________ _________________________________________ (1 mark)

Q.11 (c) In the period March 2000 to March 2004, which capital city experienced thehighest rate of inflation? Show your calculations in the space below.

______________________________________________ ______________________________________________

17



______________________________________________ ________________________________________ (2 marks)

SELECTED TABLES FROM CONSUMER PRICE INDEX,

AUSTRALIA (CAT. NO. 6401.0)

1 ALL GROUPS, Index Numbers(a)Weighted

averageof

eightcapital

Period SydneyMelbourneBrisbaneAdelaide PerthHobartDarwinCanberra cities

2000March 125.8 124.7 125.5 126.8 123.1 125.3 124.4 124.9 125.2June 127.0 125.6 126.4 127.6 124.0 126.5 125.7 125.9 126.2

September 131.6 130.4 131.3 132.3 128.6 131.3 130.0 130.7 130.9December 132.2 130.8 131.6 132.5 128.8 131.2 130.6 131.1 131.32001March 134.0 132.2 132.7 134.1 129.6 132.1 130.7 132.2 132.7June 135.0 133.0 134.0 135.1 131.4 133.4 132.2 133.4 133.8September 135.4 133.6 134.2 135.3 131.5 132.8 132.5 133.2 134.2December 136.6 134.8 135.8 136.6 132.6 133.9 133.5 134.9 135.42002March 137.9 136.0 137.1 137.7 133.7 135.2 133.8 135.6 136.6June 138.8 136.9 138.1 139.1 134.6 137.0 135.0 137.2 137.6September 139.6 137.8 139.2 140.3 135.8 137.5 135.4 138.1 138.5December 140.4 139.0 139.9 141.5 136.4 138.0 136.2 139.2 139.52003

March 142.1 140.9 141.8 144.6 137.4 140.0 137.5 140.7 141.3June 142.2 140.9 141.8 144.3 137.4 140.8 137.9 140.7 141.3September 142.4 141.8 143.3 145.4 138.6 141.1 137.8 141.9 142.1December 143.6 142.1 144.2 146.2 139.2 142.0 138.5 142.9 142.82004March 145.0 143.5 145.4 147.7 139.6 143.0 139.0 143.9 144.1

(a) Base of each index: 1989-90 = 100.0

This document published 28 April 2004

18

sem2exam2004yr11eco

Documents