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VCE ECONOMICS UNIT 1 2015

CPAP Practice examination

Reading time: 15 minutes

Writing time: 2 hours

Name

QUESTION AND ANSWER BOOK

Structure of book

Section Number of questions

Number of questions to be answered

Number ofMarks

A (Compulsory) 15 15 30B (Compulsory) 4 4 30C (Compulsory) 3 3 30

D (Optional) E (Optional)

2 215 15

3030

Total 90 or

120 minutes

Note 1: Schools offering 90 minute exams should use Parts A–C (or parts A+B and a combination of C-E).Note 2: Schools completing 2 hour exams should use Parts A–C in addition to Part D and/or ENote 3: Part D of the exam covers the contemporary issues of inflation and equity in the distribution of income.Note 4: Part E includes 15 additional multiple choice questions from across the Unit 1 syllabus

Students are permitted to bring into the practice examination: pens, pencils, highlighters, erasers, sharpeners and rulers.

Students are NOT permitted to bring into the examination room: blank sheets of paper and/or white out

liquid/

tape. No calculator is allowed in this examination.Materials supplied Question and answer book. Answer sheet for multiple choice questions. Additional space is available at the end of the book if you need extra space to complete an answer.Instructions Write your name in the space provided above on this page. Check that your name is written on your multiple choice answer sheet(s). All written responses must be in English.At the end of this examination Place the answer sheet(s) for multiple-choice questions inside the front cover of this book.Students are NOT permitted to bring mobile phones and/or any other unauthorised electronic devices into the examination room

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CPAP © 2015 VCE Economics Unit1 Examination (Question and Answer book)

SECTION A: Multiple Choice QUESTIONS (30 MARKS)

Question 1Which of the following is unlikely to be considered an opportunity cost associated with investing money in a new rail network?

a) The value derived from investing the money in road infrastructure b) The benefits gained from spending the money on national parksc) The money that would be paid to the construction companyd) The rewards that would be enjoyed from spending the money on education

Question 2In the market for motor vehicles sold in Australia over 2014-15, which of the following events is most likely to have caused a shift from D1 to D2?

a) The reduction in government subsidies to the motor vehicle industry

b) Lower petrol prices

c) Lower tariffs on motor vehiclesd) Cheaper imported motor vehicles due to

technological advances overseas

Question 3Education is currently Australia’s fourth largest export. Which of the following recent events has not helped to further boost growth in education export revenue for Australia?

a) The growth in nominal labour costs in Australia b) The decline in the value of the Australian dollar c) The continuing growth in Chinese incomesd) The fall in the trade weighted index

Question 4In 2015, the federal government is under significant pressure to raise more revenue by changing the tax system. Which of the following tax changes is most likely to increase inequality in the distribution of income?

a) Increase the company taxb) Reduce superannuation tax concessions for high income earnersc) Remove loopholes that allow multinational corporations to minimise tax d) Increase the GST to 15%

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Question 5In April 2015, Australian Competition and Consumer Commission (ACCC) action resulted in$2.5 million penalties imposed on Coles for misleading and deceiving consumers into believing its bread was freshly baked. Coles’ behaviour is an attempt to maximise profits via a strategyto

a) Eliminate or minimise competition b) Price discriminatec) Multi-brand its product range d) Externalise some costs

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Question 6


In April 2015, Queensland authorities revealed that a banana plantation tested positive for a disease that has the potential to wipe out parts of the banana industry. Which of the following is most likely to occur if the disease spreads to numerous farms across Queensland?

a) Higher banana prices and lower banana output b) Higher banana prices and higher banana output c) Lower banana prices and lower banana output d) Lower banana prices and higher banana output

Question 7Which of the following is least likely to increase Australian living standards?

a) The successful implementation of anti-terrorism measures by governmentsb) An increase in carbon emissions due to a greater production of coal fired electricity c) Growth in real GDP above the rate of population growthd) Successful global efforts to combat climate change

Question 8Which of the following is most likely to have contributed to the decrease in the price of clothing during 2014?

a) The fall in the trade weighted index b) A lower exchange ratec) A fall in real wages d) Lower interest rates

Question 9Which of the following is the best example of expansionary policies to stimulate economic growth?

a) A bigger budget deficit and the RBA raising interest rates b) A smaller budget deficit and the RBA raising interest rates c) A bigger budget deficit and the RBA reducing interest ratesd) A smaller budget deficit and the RBA reducing interest rates

Question 10Which of the following is not likely to contribute to a stronger rate of economic growth over2015-16?

a) Lower value of the Australian dollar b) Lower terms of tra d e c) Lower interest ratesd) Higher levels of consumer and business confidence

Question 11Which of the following is inconsistent with international cooperation on environmental issues?

a) The signing of the Kyoto protocol by many nationsb) The implementation of carbon pricing in many countries c) Focus on the triple bottom line by many nationsd) The repeal of the carbon tax in Australia

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Question 12


The recent natural disasters in north eastern Australia, including the Sydney storms andQueensland cyclones, are likely to have contributed to:

a) An increase in Australian living standards b) An increase in the rate of inflationc) A decrease in government infrastructure spending d) An increase in agricultural exports

Question 13Which of the following market structures is most likely to result in the lowest prices for consumers?

a) Monopoly b) Oligopolyc) Perfect competitiond) Monopolistic competition

Question 14In March 2015, surfboard shapers in coastal areas of Australia complained about the damaging effects of Chinese competition. Which of the following statements is incorrect?

a) Chinese producers face lower costs and can export into Australian markets at lower prices b) The Australia/China free trade agreement should help Australian surfboard shapersc) Australian labour and raw material costs are relatively high for Australian surfboard shapersd) The relative price of Chinese surfboards has decreased in response to economies of scale achieved in

Chinese factories

Question 15Over recent months, all of the following variables fell, except:

a) The value of the Australian dollar?b) The price of crude oil c) The price of iron ored) The price of properties in Australian capital cities

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SECTION B: STRUCTURED QUESTIONS (30 MARKS)

Name

Question 1Iron ore is the key ingredient in steel making and is a major export earner for the Australian economy. Over 2015, the price of iron ore has fallen significantly, from approximately $71 (per tonne) in January 2015 to $47 in early April. This is largely due to a fall in Chinese demand for iron ore as well as growth in global iron ore production. To reverse the decline in iron ore prices, the Chairman of Fortescue Metals (Twiggy Forrest) called for a ‘productioncap’ (i.e. restrict global supply) to force prices back up. Industry analysts have suggested that this would be considered anti-competitive in the form of ‘cartel conduct’.

a. Use a demand and supply diagram to illustrate why the iron ore price has fallen from $71 to $41. 3 marks

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b. Define economic growth and explain how lower iron ore prices can have a negative impact on economic growth in Australia. 4 marks

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c. Explain how the market for steel is likely to be affected by lower iron ore prices. Use a demand and supply diagram to illustrate. 4 marks

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d. Define relative prices and explain how a change in the relative price of iron ore can alter the allocation of resources 4 marks

e. In some situations, aluminium is a substitute for steel. Explain how the market for aluminium may respond to falling iron ore prices 2 marks

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f. Define ‘cartel conduct’ and explain why it is considered to be anti-competitive. 4 marks

g. Define ‘perfect competition’ as a market structure and outline two characteristics that suggest the mining industry in Australia is not perfectly competitive. 4 marks

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h. Distinguish an ‘oligopoly’ from a ‘monopoly’. 3 marks

i. Explain why a decision by a farmer to sell land to a mining company comes at an‘opportunity cost’. 2 marks


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SECTION C: STRUCTURED QUESTIONS (30 MARKS)

Question 2

a. Explain how economic growth is measured and describe the trend in economic growth since March 2014. 4 marks

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b. Define the term ‘recession’ and discuss whether Australia has experienced a recession over the past four years. 4 marks

c. Define living standards and explain why ‘real GDP per capita’ is a better measure of living standards than ‘real GDP’. 4 marks


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d. Define sustainable development and discuss whether real GDP per capita is a good measure of sustainable development. 4 marks

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e. Discuss how the rate of economic growth in Australia is likely to be affected by each of the following economic events:

i. A decline in consumer confidence ii. An increase in business taxesiii. A fall in the value of the Australian dollariv. A slower rate of economic growth in China 8 marks

A decline in consumer confidence

An increase in business taxes

A fall in the value of the Australian dollar


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A slower rate of economic growth in China

f. Define the term ‘externality’ and discuss why destruction of native forests might be considered a negative externality in production. 4 marks

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g. Describe one action that could be taken by a government or some other group to protect the environment. 2 marks

SECTION D: STRUCTURED QUESTIONS (30 MARKS)

Question 3

Carefully study the information presented in Table 1, and answer the questions

that follow. Table 1: 2014 KEY FIGURES – CONSUMER PRICE INDEX (CPI)

DECEMBER 2014 KEY FIGURES Sep Q tr Dec 2014 to Dec 2013 to

Qtr 2014 Qt r 20Weight ed average of eight capital W eighting % change % change cit ies

Food and non -alc oholic bever ages (16.8) 0.1 2.01.7 7.40.1 -1.50.5 2.40.5 0.5

-0.9 4.4-2.2 -1.9-0.1 -3.01.0 0.80.0 5.21.0 2.0

Alcohol and tobacco (7.1)Clothing and footwear (4.0)Housing (22.3)Fur nishings, household equipment and services (9.1)Health (5.3)Transport (11.6)Communic ation (3.1)Recr eation and cultu re (12.6)Education (3.2)Insurance an d financial servic es (5.1)

All groups CPI (seasonally adjusted) 0.3 1.6

a. Explain what the consumer price index (CPI) seeks to measure. 2 marks

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b. Outline why Housing has a much higher weighting in the CPI than ‘Clothing and Footwear’.

2 marks

c. Identify the annual rate of inflation for the year to the end of December 20141 mark

d. Discuss how the inflation rate over 2014 can help to promote employment growth over

2015. 3 marks


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e. Explain how each of the following factors is likely to have impacted on inflation over the

December quarter of 2014. 4 marks

i. A large fall in global crude oil prices over the final quarter of 2014 ii. The increase in excise (i.e. tax) on tobacco in September 2014

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f. Explain how and why the Reserve Bank of Australia (RBA) is likely to respond if the inflation rate increases to more than 5% over 2015-16. 3 marks

Question 4Carefully study the information presented in the table and chart below and answer the questions that follow.

Equivalised disposable household income2002–03 2003–04 2005–06 2007–08 2009–10 2011–12

Lowest quintile % 7.7 8.0 7.8 7.3 7.4 7.5

Second quintile % 12.8 12.8 12.7 12.3 12.4 12.6Third quintile % 17.6 17.6 17.4 16.9 17.0 17.3Fourth quintile % 23.7 23.2 23.0 22.6 23.0 23Highest quintile % 38.3 38.4 39.2 41.0 40.2 39.5All persons % 100.0 100.0 100.0 100.0 100.0 100

a. Using the information contained in the table, discuss whether the distribution of income has become more or less equal since 2009-10. 3 marks

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b. Distinguish between the terms income and wealth. 3 marks

c. Explain how each of the following events is likely to impact on lower income earners relative to higher income earners. 5 marks

i. The increase in excise (tax) on tobacco by 12.5% in September 2014ii. The introduction of the budget repair levy that forces those earning more than

$180,000 per year to pay an additional 2% tax on their income above that level

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d. On the diagram below, label the vertical axis and show how the position of the Lorenz

Curve for final income could change in response to an increase in the GST to 15% in 2016.

2 marks 1 mark for correctly labelling the vertical axis 2nd mark for correctly identifying that the Lorenz curve would shift to the right

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e. Explain why the Lorenz curve would move in the direction indicated in the answer to part d. above. 2 marks

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Extra space for responses

Clearly number all responses in this space

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VCE ECONOMICS UNIT 1

2015 Practice Examination

SECTION E ADDITIONAL 30

MARKS WORTH OFMULTIPLE CHOICE

QUESTIONS15 MULTIPLE

CHOICE

Answer the questions on the multiple choice answer sheet

marked Part E

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SECTI O N E MULTIPLE CHOICE

QUESTIONS

Question 16With respect to the market for pens, which of the following statements is correct?

a) The price will rise when the supply increasesb) The price will fall when the demand for ink increases c) The price will fall when the demand increasesd) The price will rise when the price of pencils increases

Question 17If the price of skateboards is above equilibrium, which of the following will occur in the market for skateboards?

a) The price will decrease because of excess supply b) The price will increase because of excess supplyc) The price will increase because of excess demand d) The price will decrease because of excess demand

Question 18Which of the following is least likely to require some form of government intervention in the market?

a) Large profits made by Coles and Woolworths b) Anti-competitive conduct by the large banksc) Misleading and deceptive conduct by car dealerships d) Dumping of waste into a river system

Question 19Which of the following is likely to exist in a perfectly competitive market?

a) A small number of buyers and sellers b) High set up costsc) Homogenous products d) High barriers to entry

Question 20Which of the following government policy measures unlikely to be employed during an economic downturn?

a) A tightening of monetary policy b) A loosening of monetary policyc) An increase in the budget deficit d) A decrease in the budget surplus

Question 21Which of the following government bodies has the primary responsibility for

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conducting monetary policy in the economy?

a) The Commonwealth Department of Treasuryb) The Australian Competition and Consumer Commission c) The Bureau of Statisticsd) The Reserve Bank of Australia

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Question 22The rate of economic growth in Australia over 2015 is likely to remain below trend if there is

a) A fall in the rate of economic growth in Chinab) An further decrease in the RBA’s target cash rate c) A fall in the Trade Weighted Indexd) A rise in the Terms of Trade

Question 23Which of the following combination of government policy measures is likely to be employed if inflation increases to a very high 10%?

a) An increase in tax rates and lower interest ratesb) A decrease government expenditure and an easing of monetary policy c) A tightening of monetary policy and a smaller budget deficitd) A reduction in tax concessions for businesses and lower interest rates

Question 24Which of the following events is likely to result in an increase in the price for canned foods inAustralia?

a) an increase in interest ratesb) a decrease in the costs of agricultural products c) a decrease in tariffs on imported canned foodsd) A merger of two canned food producers Kraft and Heinz

Question 25Which of the following best describes the impact on economic growth, employment and inflation if there was a rise in the value of the Australian dollar over 2015?

a) Higher economic growth and higher inflation b) Lower economic growth and higher inflation c) Higher economic growth and lower inflation d) Lower economic growth and lower inflation

Question 26Which of the following factors is likely to reduce growth in real GDP?

a. Higher productivity b. Higher interest ratesc. Stronger growth in the USAd. A lower value of the exchange rate

Question 27Which of the following is the most accurate description of a negative externality in consumption?

a) When the costs associated with consumption increase over timeb) When the consumption of goods or services is disappointing for the consumersc) When the consumption of goods creates costs for third parties (e.g. passive smoking)

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d) When some of the costs associated with production are passed onto third parties

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Question 28Which of the following is most likely to be a factor contributing to the growth in the Australian sharemarket over 2015?

a) The decision by Ford, Holden and Toyota to cease operations in Australia b) Further easing of monetary policy in early 2015c) The expected decrease in the budget deficitd) Relatively low rates of consumer and business confidence

Question 29Which of the following is likely to exist in the downturn phase of an economic or business cycle?

a) Lower interest rates b) Lower unemploymentc) Higher levels of business confidenced) Higher inflation rates

Question 30Which of the following provides the best measure of material living standards in Australia?

a) Nominal gross domestic product per person b) Real gross domestic product per personc) Gross domestic product d) Consumer price index

END OF QUESTION AND ANSWER BOOKLET

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SECTION A

(15 MULTIPLE CHOICE)

Multiple choice answer

sheet

Student Name

Answer the 15 questions by shading only one box (either A, B, C, or

D) in each of the 15 rows below:

1 A B C2 A B C3 A B C4 A B C5 A B C6 A B C

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7 A B C8 A B C9 A B C


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SECTION E

(15 MULTIPLE CHOICE)

Multiple choice answer

sheet

Student Name

Answer the 15 questions by shading only one box (either A, B, C, or

D) in each of the 15 rows below:


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22 A B C23 A B C24 A B C25 A B C26 A B C27 A B C28 A B C29 A B C30 A B C

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