Caringbah

High School
2008
SEMESTER ONE EXAMINATION

Year 12

ECONOMICS

General Instructions

Reading time 5 minutes

Working time 2 hours
Board approved calculators may be
used
Write using blue or black pen
Write using student name in spaces
provided

Section 1
Total marks 20
Attempt questions 1 20
Allow about 30 minutes for this
section
Section II
Total marks 40
Attempt questions 21 24
Allow about 1 hour for this section
Answer in the spaces provided
on the question paper
Section III
Total marks 20
Attempt question 25 or question 26
Allow about 30 minutes for this
section
Answer in a separate booklet or
on a new sheet of paper

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CARINGBAH HIGH SCHOOL

2008
SEMESTER ONE EXAMINATION
ECONOMICS
ANSWER SHEET SECTION 1 MULTIPLE CHOICE.
STUDENT NAME:
Clearly mark your intended answer.
Choose either A,B, C or D.

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20

A
A
A
A
A
A
A
A
A
A
A
A
A
A
A
A
A
A
A
A

B
B
B
B
B
B
B
B
B
B
B
B
B
B
B
B
B
B
B
B

C
C
C
C
C
C
C
C
C
C
C
C
C
C
C
C
C
C
C
C

D
D
D
D
D
D
D
D
D
D
D
D
D
D
D
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D
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D
D

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Section I
20 marks
Attempt Questions 1-20
Allow about 30 minutes for this section
Use the Multiple Choice Answer Sheet provided
Select the alternative A, B, C, or D that best answers the question

What is the fundamental economic reason why nations trade?

(A) To earn income from overseas buyers
(B)

To develop military alliances

(C)

To take advantage of differences in factor endowments

(D) To cause an appreciation in the currency

Which of the following factors would lead to an increase in the value of the Australian
dollar?
(A) An increase in US interest rates
(B)

A decrease in demand for Australian exports

(C)

An increase in demand for imports in Australia

(D) An increase in foreign capital inflow

An Australian business borrows $5 million from an overseas bank to fund its

expansion. How would this transaction be recorded in Australias balance of payments?
(A) A debit on the capital account
(B)

A credit on the financial account

(C)

A debit on current transfers in the current account

(D) A credit on net income in the current account

The following data is from the economy of The Republic of Maverick

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Year
1
2
3

Import Price
Index
100
108
121

Export Price
Index
105
115
125

Which of the following statements describes the terms of trade in the Republic
of Maverick?
(A) The terms of trade improved in Year 2 and improved in Year 3
(B)

The terms of trade deteriorated in Year 2 and improved in Year 3

(C)

The terms of trade improved in Year 2 and deteriorated in Year 3

(D) The terms of trade deteriorated in Year 2 and deteriorated in Year 3

Which of the following represents the effect of imposing a tariff on an economy?

(A)

The domestic price would increase to the equilibrium price (0Pe)

(B)

Domestic production would increase from 0Q1 to 0Q2

(C)

Import volumes would increase from 0Q2 to 0Q3

(D)

Government revenue would be equal to the world price (0Pw)

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Which of the following is likely to reduce inequality in the global distribution of

income?
(A) An increase in agricultural subsidies in the EU
(B)

An increase in bilateral trade agreements between developed nations

(C)

An increase in global interest rates

(D) An increase in multilateral trade agreements involving developing nations

In relation to exchange rate systems, when is a dirty float most likely to be

implemented?
(A) When an external shock causes a rapid change in the exchange rate
(B)

When a government regards the value of capital inflow to be too small

(C)

When a government regards the value of capital inflow to be too large

(D) When export-dominated sectors of an economy are suffering reduced profits

The following data shows the foreign liabilities of an economy.

Loans owed by
domestic citizens
and companies to
foreigners

Year

($billion)

Loans owed by
foreigners to
domestic
companies and
financial
institutions
($billion)

Value of domestic
assets owned by
foreigners

Value of foreign
assets owned by
domestic citizens
and companies

($billion)

($billion)

500

200

800

400

750

320

920

550

What changes have occurred between Year 1 and Year 2?

(A) A decrease in net foreign debt and an increase in net foreign equity
(B)

An increase in net foreign debt and an increase in net foreign liabilities

(C)

A decrease in net foreign debt and a decrease in net foreign equity

(D) A decrease in net foreign debt and a decrease in net foreign liabilities

Which one of the following is not a free trade agreement?

(A) AUSFTA
(B)

NAFTA

(C)

CERTA

(D) OPEC

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10

The following data is from the economy of Cougar.

Balance of Payments
Balance on Goods & Services
Net Income
Capital Account
Financial Account
Net Errors and Omissions

$ billion
-12.0
-46.7
2.1
57.2
-0.1

What is the value of the current account?

(A) -$0.4billion
(B)

$59.2 billion

(C)

-$59.2 billion

(D) -$58.7 billion

11

Which of the following would increase as a result of a decrease in global economic

activity?
(A) The Australian dollar
(B)

Domestic inflation

(C)

The debt-servicing ratio

(D) Export receipts

12

Which of the following is an example of convergence as a result of globalisation?

(A) Changes to the protection of a specific industry in a developed economy in line
with WTO guidelines
(B)

A fall in GDP per capita in a transition economy during a period of structural

change

(C)

An increase in annual GDP growth rates in a newly industrialised economy

following financial assistance from the IMF

(D) The reduction in military spending in a developing country following the end of
a civil war
10

Which of the following could worsen the international competitiveness of an

economy?
(A) The surplus in the government budget becomes a deficit
(B)

An increase in official interest rates

(C)

Wage increases in the manufacturing and services sectors

(D) Trade negotiators are unable to complete a new trade agreement with another
country
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11

Which of the following is a structural cause of Australias current account deficit?

(A) Falling demand for our exports from our trading partners
(B)

An increase in domestic interest rates

(C)

An increase in demand for imports during an economic upswing

(D) A low level of household saving

12

The diagram below shows a fixed exchange rate system for an economy.
$US

D
S

0.85
0.80

D
S
400

600

800

Quantity
($billion)

What action will be required to fix the currency at US$0.80?

(A) The central bank will need to buy $600 billion on the foreign exchange market
(B)

The central bank will need to buy $800 billion on the foreign exchange market

(C)

The central bank will need to sell $400 billion on the foreign exchange market

(D) The central bank will need to sell $200 billion on the foreign exchange market

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16

Which of the following best describes recent changes in Australias composition

of trade?
(A) Australia has experienced increased exports to China
(B)

Australia has experienced growth in revenue from services exports

(C)

Australian trade with the US has increased since the signing of the Free Trade
Agreement

(D) Mining production has made up a smaller proportion of Australian exports in

recent years.

17

A developing country requires financial and technical assistance to develop port

infrastructure to increase its export ability. Which global institution would provide
assistance?
(A) The World Bank
(B)

The World Trade Organisation

(C)

The International Monetary Fund

(D) The G8

13 Which of the following is likely to occur if the Australian dollar appreciates

significantly against the currencies of its trading partners?
(A)
(B)
(C)
(D)

An increase in overseas students studying in Australia

An increase in overseas tourists visiting Australia
An increase in Australian wheat sales to overseas markets
An increase in the sale of the latest imported electronic goods

14 The following information refers to a nations terms of trade:

Year
2005
2006

Import Price
Index
90
105

Export Price
Index
100
106

What was the most likely effect of the change in this nations terms of trade
over this period?
(A)
(B)
(C)
(D)

A decrease in its current account surplus

Export volumes exceed import volumes in both years
More imports can be purchased with the given level of exports
Fewer imports can be purchased with the given level of exports

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20

Which set of circumstances is likely for a country experiencing an increase

in its current account deficit?
(A) An increase in the capital and financial account surplus and an
appreciation in the exchange rate
(B) A decrease in the capital and financial account deficit and a
depreciation in the exchange rate
(C) A decrease in the capital and financial account deficit and an
appreciation of the exchange rate
(D) An increase in the capital and financial account surplus and a
depreciation of the exchange rate

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Name:
Marks

Economics
Section II
40 marks
Attempt Questions 21-24
Allow about 60 minutes for this section
Answer the questions in the spaces provided.
Question 21

(10 marks)

The following diagram shows the market for DVD Players in an economy.
Price
($)

S1
310

220

S1

S
24,000

(a)

33,000

D
42,000

Quantity (per annum)

Define the term protection.

Question 21 continues over next page

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Name:
Marks
(b)

Identify the type of protection given to domestic producers of DVD players.

(c)
2

Outline TWO reasons why the government may have given protection to the
producers of DVD players.

(d)

Outline TWO economic advantages of using this type of protection for the economy.

Question 21 continues over next page

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Name:
Marks
(e)

Discuss the implications of a reduction in protection levels for Australian firms,

4
individuals and governments.

End of Question 21

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Name:
Marks
Question 22

(10 marks)

The following data is an excerpt from the Balance of Payments data

from a hypothetical economy.
$ (million)
Net current transfers
18,000
Goods credits
480,000
Income debits
612,000
Net services
2,000
Income credits
522,000
Goods debits
560,000
(a)
2

Calculate the value of the current account for this economy.

(Show all working)

(b)

Describe THREE factors that could affect the trend in the balance of
3
goods and services over time.

Question 22 continues over next page

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Name:
Marks
(c)
5

Explain the impacts on the economy of Australia having a persistent

CAD problem.

End of Question 22

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Name:
Marks
Question 23

(10 marks)

The following table shows a nation's import price index and export price index
over three years.

(a)
1

Year

Import price
index

Export price
index

100

100

105

115

120

130

Using the data above, calculate the Terms of Trade index in Year 2.
(Show all calculations.)

(b)

State the trend in the nation's Terms of Trade over the three year period.

(c)
2

(i)

Explain how the trend in the nation's Terms of Trade, as indicated by the
table, could affect the nation's imports.

Question 23 continues over next page

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Name:
Marks
(ii)

Explain how the trend in the nation's Terms of Trade, as indicated by the

2
table, could affect the nation's exports.

(d)
4

Explain TWO ways in which Australia's export base contributes to Australia's

current account deficit problems.
(i)

(ii)

End of Question 23

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Name:
Marks
Question 24

(10 marks)

The table below describes the average rates of tariff protection in a hypothetical economy.

1968-9
36%
(a)
1

1977-8
23%

1982-3
25%

1986-7
19%

1994-5
9%

2003-4
4.5%

2005-6
3.1%

Quoting evidence from the table, identify the trend in the rates of tariff
protection in the economy.

(b)
2

Describe how the protectionist policies of other nations impact on the

Australian economy.

(c )
3

Describe ONE multi-lateral agreement that has sought to reduce global

protection between economies.

Question 24 continues over next page

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Name:
Marks
(d)

Explain why a government may over time aim to reduce the level of protection.

End of Question 24

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Section III
Attempt either Question 25 or Question 26
Allow about 30 minutes for this section
Answer the question on the writing paper provided. Extra writing paper is available. Make
sure you write your name on your response.

In your answer you will be assessed on how well you:

use your knowledge and the economic information provided

apply economic terms, concepts, relationships and theory

present a sustained, logical and well structured answer to the question

Question 25

(20 marks)

It is widely acknowledged that a level playing field does not exist in the global
economy. Many countries face numerous barriers to accessing global trade or
financial markets. It is for this reason that international organisations have
tried to create rules, frameworks, leadership and assistance to providing a more
efficient global economy.
Agreement

Agreement Type

Australian New Zealand Closer Economic Relations Trade

Agreement (ANZCERTA)
Singapore-Australia Free Trade Agreement (SAFTA)
Australia-United States Free Trade Agreement (AUSFTA)
Thailand-Australia Free Trade Agreement (TAFTA)

Bilateral
Bilateral
Bilateral
Bilateral

Outline the reasons why nations trade and analyse the role of international
organisations and trade agreements in influencing the global economy.
OR

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In your answer you will be assessed on how well you:

use your knowledge and the economic information provided

apply economic terms, concepts, relationships and theory

present a sustained, logical and well structured answer to the question

Question 26

(20 marks)

Describe the factors causing an appreciation of the Australian dollar and analyse
the effects of an appreciation in the exchange rate of the Australian dollar
(against other currencies) on the performance of the Australian economy.

- End of questions -

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