Section II

40 marks
Attempt Questions 21- 24
Allow about 1 hour and 15 minutes for this section

Answer the questions in the spaces provided. These spaces provide guidance for the expected length
of response:

Question 21 (10 marks)

The following table shows changes in the level of national income.

Income (Y) Consumption (C) Investment (I)

400 300 120
800 600 120
1200 900 120

(a) Calculate the value of the multiplier. 1

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(b) If the initial equilibrium level of national income was $1600 million and if the level of 1
investment rose by $100 million, what would be the new level of national income?

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(c) Outline how a decrease in the marginal propensity to consume may impact on indirect 2
taxation revenue.
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(d) What labour market strategies can business/ firms employ to improve the productive 2
capacity of an economy?

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(e) Explain how an increase in positive net exports may impact on the economic objectives 4
of economic growth and external stability.

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End of Question 21

Question 22 (10 marks)

(a) Distinguish between hidden unemployment and frictional unemployment. 2

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(b) Explain how the non-accelerating inflation rate of unemployment (NAIRU) has policy 4
implications for the reduction in the rate of unemployment.

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Question 22 continues on the next page

Question 22 (continued) Marks

(c) Explain ONE economic cost and ONE social cost of unemployment. 4

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End of Question 22
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Question 23 (10 marks)
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(a) Define monetary policy.

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(b) Outline ONE objective of monetary policy in Australia. 1

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(c) Explain how the Reserve Bank could ease the stance of monetary policy in Australia. 3

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Question 23 continues the next page

Question 23 (continued) Marks

(d) Analyse the effects on economic activity of an easing in the stance of monetary policy 5
in Australia.

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End of Question 23
Question 24 (10 marks)

The diagram illustrates the effect of a government tariff of $10 on a particular product in the agriculture
industry.

Prior to the imposition of the tariff the world price was $30.

(a) Indicate on the diagram above, the area that would represent tariff revenue. 1

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(b) The government is considering replacing the tariff with a subsidy. 1

What is the subsidy (per unit) paid to domestic producers so that the number of imports remains
the same?

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 Question 24 (continued) Marks

(c) Compare and contrast the effects of tariffs and subsidies. 4

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(d) Explain the implications for Australia of protectionist policies by its main trading 4
partners.

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End of Question

Section III
Total marks (20)
Attempt Questions 25 or Question 26
Allow about 35 minutes for this section

Answer the questions in the writing booklets provided. Extra writing booklets are available.

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

• demonstrate knowledge and understanding relevant to the question
• use the information provided
• apply relevant economic terms, concepts, relationships and theory
• present a sustained, logical and cohesive response

Question 25 (20 marks)

Discuss the rationale behind the use of microeconomic policies and the impact of these policies in
pursuing Australia’s economic objectives of economic growth, internal balance and external stability.

Emerging from the Crisis: Recovery and Reform

Address to the Australian Business Economists (18 May 2021)
In this Budget, the Government has announced significant additional funding and reforms relating to the provision
of mental health, aged care and employment services. These sectors all fall under the umbrella of non-market
services. Non-market services are a significant part of the economy, representing around 21 per cent of
economic activity and 29 per cent of employment. They play avital role in improving wellbeing and reducing
inequality.
Confidence in the sustainability of government provision of services such as aged care can reduce uncertainty
about the cost and availability of care services, which can itself raise welfare andincrease economic growth. The
Government clearly has a role to play in incentivising greaterproductivity in these sectors and can do so by
applying sound economic principles when designing systems for funding and the provision of services and
encouraging innovation among providers to improve the quality and safety of care provided.

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Answer the question in a writing booklet, if provided. Start the question on a new page.
 In your answer you will be assessed on how well you:
• demonstrate knowledge and understanding relevant to the question
• apply relevant economic information, terms, concepts, relationships and theory
• present a sustained, logical and cohesive response

Question 26 (20 marks)

Discuss the objectives of the Australian Government’s use of fiscal policy and the effects on the budget
outcome and net debt. In your response, refer to the economic information provided.

Economic and Fiscal Strategy

The Government’s first phase of the Economic and Fiscal Strategy seeks to promote employment
growth, business and consumer confidence through discretionary fiscal policy and the operation
ofautomatic stabilisers. The priority of this strategy is to ensure a strong and sustained recovery
to drive down the unemployment rate.
Consistent with this strategy since the onset of the COVID-19 pandemic, the Government has
provided unprecedented support to households and businesses …... …. .. … .
Before a transition to the second phase of the Strategy, the Government’s ambition is for
sustainable private sector-led growth to drive unemployment down to pre-pandemic levels or
lower.Only once the economic recovery is secured will the Government transition towards the
medium-term objective of stabilising and reducing debt as a share of GDP.
Source: Australian Government, Budget Paper No.1, 2021-22

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Section IV

20 marks
Attempt either Question 27 or Question 28
Allow about 35 minutes for this section

Answer the Question in a SEPARATE writing booklet.

Your answer will be assessed on how well you:

▪ demonstrate knowledge and understanding relevant to the question
▪ apply relevant economic information, terms, concepts, relationships and theory
▪ present a sustained, logical and cohesive response

Question 27 (20 marks)

Assess the impact of changes in trade and financial flows on Australia’s economic
performance.

OR

Question 28 (20 marks)

Assess the strategies used to promote growth and development in an economy other than
Australia.

End of paper

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