PES ECONOMICS UNIT 4 OUTCOME 1

Student Name:

PES2017 ECONOMICS UNIT 4

SET 1 - OUTCOME 1

AGGREGATE DEMAND POLICIES AND DOMESTIC ECONOMIC STABILITY

Structure of book

Number ofQuestions

Number of questionsto be answered

Number ofmarks

7 7 60Instructions: Answer all questions in the space provided

Duration of task: 95 minutes plus 10 minutes reading time

Students are permitted to bring into the SAC room: pens, pencils, highlighters, erasers, sharpeners and rulers

Students are NOT permitted to bring into the SAC room: blank sheets of paper and/or white out liquid/tape.

Materials supplied Question and Answer Book of 16 pages.

Instructions Write your name and your teacher’s name in the space provided on the front page of this

book. Answer all questions in the spaces provided.

Students are not permitted to bring mobile phones and/or any other unauthorised electronic devices into the SAC room.

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Question 1 (12 marks)

a. Explain the relationship between aggregate demand and the Business Cycle. 2 marks

b. Define, with the use of examples, the following terms: 3 x 2 marks = 6 marks

i. Government current expenditure

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ii. Government capital expenditure

iii. Transfer payments

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c. Explain the impact of discretionary stabilisers on the budget outcome. 4 marks

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Question 2 (14 marks)

a. Explain the difference between the fiscal balance and the budget outcome 2 marks

b. Analyse the effect of one budget initiative from the past two years on the Australian Government’s domestic macro-economic goal of low inflation and one budget initiative from the last two years on the goal of full employment. 6 marks

First Budget Initiative on low inflation______________________________________________

Second Budget Initiative on full employment_______________________________________

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c. Evaluate the use of budgetary policy to achieve improved living standards. 6 marks

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Question 3 (6 marks)

Discuss how the Australian Government can alter the composition and level of government outlays and receipts to indirectly influence the achievement of domestic macro-economic goals.

Question 4 (11 marks)

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a. Explain how the RBA influences interest rates. 3 marks

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b. Analyse how the RBA may respond to a consistent appreciation in the Australian dollar.

4 marks

c. Analyse how the RBA may respond to record high wage growth and lower unemployment.

4 marks

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Question 5 (6 marks)

Describe the trend of monetary policy over the last two years and the impact on the current levels of aggregate demand and full employment.

Question 6 (5 marks)

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DOMESTIC ECONOMIC OUTLOOK

Australia’s real GDP is forecast to grow by 2 per cent in 2016-17. This is weaker than forecast at PEFO, partly reflecting the decline in GDP in the September quarter. Economic growth is forecast to strengthen to 2¾ per cent in 2017-18 as the detraction from mining investment eases. The transition underway in the economy from the investment phase to the production phase of the mining boom is expected to continue. Exports and household consumption are expected to support growth, with dwelling investment higher in the near term. A modest recovery in non-mining business investment is expected over coming years.

Mid-year Economic and Fiscal Outlook 2016-17

http://www.budget.gov.au/2016-17/content/myefo/html

Suggest and justify what the RBA may do in the coming year based on this article.

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Question 7 (6 marks)

Glenn Stevens, Governor of the Reserve Bank of Australia, 24th May 2016, Tran-Tasman Business Circle Boardroom

Briefing (Sydney) http://webcasting.boardroom.media/broadcast/5743d91a3efb368650c48f54

Based on the speech of Glenn Stevens, Governor of the Reserve Bank of Australia evaluate the use of monetary policy to achieve the Australian Government’s domestic macroeconomic goals and how these may effect living standards

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END OF PAPER

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Extra space for responses

Clearly number all responses in this space

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