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10 BUE

Understanding Economics
EXAMINATION
Reading time: 10 minutes
Writing time: 90 minutes
Wednesday,20th June, 2012
1.30pm
Cotham Road Site
Your name: _____________________
Teachers initials: DGM
Instructions:
1. Section A (Multiple Choice) is to be answered on the Multiple Choice Answer
Sheet provided. This section is COMPULSORY.
Marks =15
2. Section B (Articles) is to be answered in this Question Booklet. This section is
COMPULSORY
Marks =35
3. Total Marks for paper = 50
4. If you run out of room or need to start your answer again, you should ask the
exam supervisor for lined paper to continue your answer. Clearly name the
extra lined sheet(s) on which you write.
5. You will not be permitted to leave the examination room until the scheduled
completion of the exam.

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SPECIAL INSTRUCTIONS:
SECTION A & SECTION B ARE TO BE ANSWERED BY ALL STUDENTS.
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SECTION A: MULTIPLE CHOICE SECTION (COMPULSORY FOR ALL STUDENTS)
Answer the following multiple choice questions by putting a cross X in the appropriate space
in the Multiple Choice Answer Sheet.
Answer the following questions on the Multiple Choice Answer Sheet provided:
1. Which one of the following is a current economic issue?
a. the lack of rain;
b. the political problems of the Labor and Liberal parties;
c. the fall in the value of the Australian dollar over the last several months;
d. curriculum changes in Victorian education.

2. If interest rates are lowered by the Reserve Bank of Australia, it is most likely because
spending levels across the economy are:
a. low, leading to higher inflation;
b. high, leading to lower inflation;
c. low, which can lead to higher unemployment;
d. high which can lead to higher unemployment;
3. Which of the following is not likely to be a consequence of falling fruit and vegetable
prices at the Queen Victoria market?
(i)
an increase in the demand for fresh food products at the market
(ii)
a fall in the demand for bananas and potatoes
(iii)
a possible decrease in profits by fresh food stall operators.
(iv)
more people attend local suburban green grocers.
a.
b.
c.
d.

(i) and (ii)


(ii) and (iv)
(ii) and (iii)
(iii) and (iv)

4. Which one of the following will raise the level of economic activity?
a. increasing savings and lowering government spending;
b. decreasing savings and increasing government spending;
c. increasing the level of imports and raising taxation;
d. none of the above.
5. Which one of the following components of expenditure depends directly on the level of
income?
a. consumption;
b. investment
c. exports
d. government

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6. The level of interest rates in Australia will most directly affect:
a. spending by Australians;
b. spending by Australias trading partners;
c. Chinese and Indian purchase of our iron ore and coal;
d. overseas demand for Australian produced goods.
7. An increase in the level of taxation will most likely:
a. raise the level of economic activity, reduce inflation and increase unemployment;
b. lower economic activity, increase unemployment and reduce inflation;
c. lower the level of inflation, reduce unemployment and increase economic growth;
d. increase inflation, raise unemployment and increase economic growth.
8. If there is an economic crisis in one of Australias major trading partners, the first sector or
flow of the model of the economy to be affected, will be the:
a. household sector;
b. the overseas sector;
c. the government sector;
d. none of the above.
9. The level of economic activity in Australia is best measured by:
a. gross domestic product;
b. the inflation rate;
c. the unemployment rate;
d. the interest rate as set by the Reserve Bank of Australia.
10. Which one of the following has an effect on the economic activity, different than the
other three:
a. an increase in taxation;
b. a reduction in government spending across the country;
c. an increase in interest rates;
d. a rise in consumer confidence.
11. What are the key components (types) of spending on Australian produced goods and
services?
a. consumer, business, government and import spending;
b. spending by consumers, retailers, government and business;
c. business, overseas, government and consumer spending;
d. spending by overseas, consumers and importers.
12.
a.
b.
c.
d.
13.
a.
b.
c.
d.

We cant have whatever goods and services we want because, as a


society:
There is never enough machinery to make the goods we need;
Our wants are greater than the level of resources needed to satisfy them;
Our needs are greater than our wants;
None of the above are true.
As shown by the model of the economy, an increase in spending:
is a direct injection into the overseas sector;
arises from the financial sector of the economy;
is a leakage from the income flow;
is an injection into the income flow.

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14. Which of the following is a feature of markets?
a. there are many buyers and sellers who do business on the basis of price;
b. a market need not be in one physical place;
c. a market is a way of organising economic activities of consuming and producing;
d. all of the above are correct.
15. If consumers are more confident about the future of the economy, which is most likely to
happen to economic activity? (Think of the model)
a. it will rise because producers are likely to retrench employees;
b. it will fall because governments will increase taxation as a result;
c. it will rise because consumers are likely to spend more
d it will fall because consumers are likely to save more and thus, spend less.

Total marks Section A: 15 marks

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SECTION B (COMPULSORY FOR ALL STUDENTS)
(CURRENT 10BUE STUDENTS PLEASE NOTE: WE HAVE NOT STUDIED THE
MODEL OF THE ECONOMY BUT THIS QUESTION HAS BEEN LEFT IN THE
PAST PAPER BECAUSE IT IS SIMILAR TO THE DIAGRAM OF ECONOMIC
ACTIVITY WHICH WAS COVERED IN THIS YEARS COURSE)
QUESTION 1: ECONOMICS ARTICLE AND QUESTIONS
Swan predicts rosy economy after global crisis
Mark Davis

Sydney Morning Herald May 12, 2010


Treasurer Wayne Swan hailed Australia's achievement in withstanding the global
financial meltdown as he handed down a budget that predicted a rosy economic outlook
with growth recovering to 3.25 per cent, household incomes and wealth rising and
stronger jobs growth pulling down the unemployment rate to less than 5 per cent over
the next two years.
In his third budget speech to Parliament, Mr Swan contrasted the outlook now with the
picture a year ago "when we faced the grimmest set of global economic conditions since
the Great Depression".
Mr Swan said Australia had "defied global economic gravity" through a combination of
the government's fiscal stimulus measures, the Reserve Bank of Australia's cuts to
interest rates last year, a well-supervised banking system and close ties with fast-growing
Asian economies like China.
Mr Swan's budget contained Treasury's economic forecasts for the next two financial
years.
The key forecast numbers were for gross domestic product to grow by 3.25 per cent in
real terms in 2010-11 followed by growth of 4 per cent in 2011-12.
The main contributors to growth are expected to be the household sector and business
investment.
Business investment spending is forecast to rise by 7 per cent in 2010-11, contributing
another 1.2 percentage points to GDP growth. Treasury predicts that employment will
grow by 2.25 per cent in 2010-11, pulling the unemployment rate down from 5.3 per cent
now to 5 per cent by June 2011. That is expected to be followed by jobs growth of 2 per
cent in 2011-12, which would see unemployment fall to 4.75 per cent by June 2012.
What is Economic Growth?
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What is a Budget?
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What is Business investment?
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What is meant by unemployment?
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What are the indicators in the article that Australia withstood the effects of the
Global Financial Crisis?
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What did Mr Swan list as reasons for Australias success at avoiding the GFC?
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(continued on the next page)

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Explain three of these with reference to the Model of the Australian Economy
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Why is business investment seen as crucial to Australias recovery from the


GFC?
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(1+1+1+1+2+2+2+2 = 12)
Question 2
The Reserve Bank of Australia's cuts to interest rates have helped the
economy.
Explain how cutting interest rates may have helped the economy.
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(2m)

Question 3
Students are to complete the answers to this section in the spaces provided.
Put the following economic events into their correct sequence (ie write the one which occurs
first at (a), the next at (b) and so on):
* Consumers spend more
* economic activity rises
* Aust. exports to overseas fall

* unemployment increases
* government stimulus package

* Global Financial Crisis


* Aust. economic activity falls

(a) ________________________________________________
(b) ___________________________________________
(c) ___________________________________________
(d) ___________________________________________
(e) ___________________________________________
(f) ___________________________________________
(g) ___________________________________________

(3m)

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Question 4
a. Identify the diagram that is pictured below.

This diagram is:


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1 mark
a. Identify the key characteristics of each of the following periods
i.
A boom
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ii.

An economic downturn (or recession)

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1 + 1 = 2 marks

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Question 5
Complete the following table to show the definition of each of the four economic
resources. You must include an example of each.
Definition and Example

Land

Labour

Capital

Enterprise

4 marks

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Question 6
a. Identify and explain the main economic problem.
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2 marks
b. What does the economic problem give rise to? Explain.
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2 marks

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Question 7
Look at the diagram below, and then answer the questions on the following
pages. (We have not studied the model in BUE this year but it is a more
involved version of the diagram of economic activity that WAS studied.
You are NOT required to know this diagram for the upcoming examination)

With reference to the five sector model of economic activity, explain how each of
the following events might affect the Australian economy:
a. An increase in consumer confidence
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2 marks

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b. An increase in income tax rates


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2 marks

c. An increase in government spending (a budget deficit)


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2 marks
Total Section B = 35