Economics 100 Exam S2 2013

School of Economics and Finance

Final Examinations
Semester 2, 2013

Unit Name: Economics 100

Unit Number: 1234

Duration: TWO (2. hours preceded by a 10 minute reading period.

Supervisor will indicate when answering of exam may begin. If you
wish to make notes, please use the back of your exam paper, or on
the edge columns.

Total Marks: 50

Aids to be supplied by the University: 16 page answer book

Aids to be supplied by the Student: Calculator is permitted

THIS IS A CLOSED BOOK EXAM

Mobile phones or any other devices capable of communicating information are prohibited from use
during examinations.
Electronic Organisers/ PDAs or any other similar devices capable of storing text or other restricted
information are prohibited.
Calculators – if the use of a calculator in the exam is allowed, only calculators specifically approved
by the school may be used. The examiner will check for compliance prior to the commencement of
the exam.
Any breaches of this policy will be considered cheating and appropriate action will be taken as per
University policy

Other information: This exam consists of TWO (2. sections:

Section A: Answer ALL questions - 20 marks
Section B: Answer ANY THREE (3. questions - 30 marks
Total – 50 marks

Student Name: ___________________________________

Student ID: ___________________________________

Campus: ___________________________________

Return your question paper with your answer booklet

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 Economics 100 Exam S2 2013

Section A: Multiple Choices – answer ALL 20 questions. Each question is worth 1

mark – total 20 marks

Record your answers on the attached answer sheet.

1. A university lecture in a course is usually not a public good because:

A. one student listening and taking notes does not detract from anyone else
listening or taking notes.
B. students who have not paid their fees can be removed.
C. students can choose whether or not they attend lectures.
D. none of these options are correct.

2. The Coase theorem states that:

A. if transactions costs are low, private bargaining will result in an efficient solution
to the problem of externalities.
B. government intervention is always needed if externalities are present.
C. a free market equilibrium is always the best solution.
D. assigning property rights is the only thing the government should do in a market
economy.

3. The basic cause of deadweight losses from the existence of common resources and
externalities is:
A. self interested rationality of human beings.
B. inefficient government.
C. use of a market system to deal with scarcity.
D. lack of clearly defined and enforced property rights.

4. The problem of adverse selection can be reduced in the health insurance market
by:
A. insurance companies carrying out their own medical examinations of people
applying for insurance.
B. insurance companies collecting as much information as they can about people
applying for insurance.
C. insurance companies requiring potential customers to submit their medical
histories.
D. all of these options are correct.

5. Which of the following transactions would be included in the official calculation of

GDP?
A. A student buys a used text book at the bookstore.
B. You illegally download music off the Internet to put on your new iPod.
C. A new iPod.
D. Bridgestone sells $2 million worth of motor vehicle tyres to General Motors
Holden.

6. Which of the following is counted in GDP?

A. The value of goods and services produced in the black economy.
B. The value of leisure.
C. The value of do-it-yourself work.
D. The cost of a speed boat purchased at Bob's Boats used by drug smugglers.

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 Economics 100 Exam S2 2013
7. A woman who quits her job to search for a job that better utilises her skills
represents an example of:
A. cyclical unemployment.
B. structural unemployment.
C. frictional unemployment.
D. seasonal unemployment.

8. Which of the following statements is true?

A. Inflation that is higher than expected benefits debtors, and inflation that is lower
than expected benefits creditors.
B. When unanticipated inflation occurs regularly, the degree of risk associated
with investments in the economy decreases.
C. Inflation improves the balance of trade as exports appear relatively cheaper to
overseas buyers and imports become relatively more expensive.
D. There are no costs or losses associated with inflation when it is fully anticipated.

9. A fall in the price level

A. causes the quantity demanded of aggregate output to increase as long as the
fall is less than the fall in the price level in other countries.
B. increases the real value of the money in people's pockets which causes
borrowing to decrease, causing investment to decrease and a decrease in the
quantity demanded of aggregate output.
C. causes exports to rise and imports to fall, leading to an increase in quantity
demanded of aggregate output.
D. leads to a reduction in the quantity demanded of aggregate output because of
the wealth effect.

10. The discovery of new iron ore fields will cause

A. both the long-run and the short-run aggregate supply curves to shift rightward.
B. the short-run aggregate supply curve to shift rightward, but not the long-run
aggregate supply curve.
C. the long-run aggregate supply curve to shift rightward, but not the short-run
aggregate supply curve.
D. the long-run aggregate supply curve to shift rightward and the short-run
aggregate supply curve to shift leftward.

11. An increase in the price of a resource such as oil

I. will shift the aggregate demand curve leftward.
II. will shift the long-run aggregate supply curve rightward.
III. will shift the short-run aggregate supply curve leftward.
IV. will increase the price level and decrease real GDP in the short run.
A. III only
B. I only
C. III and IV
D. I and II

12. If real GDP decreases:

A. the money demand curve will shift to the right.
B. there will be a rightwards movement along the money demand curve.
C. there will be a leftwards movement along the money demand curve.
D. the money demand curve will shift to the left.

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 Economics 100 Exam S2 2013
13. If the Reserve Bank of Australia buys bonds and securities in the open market, this
is likely to lead to a:
A. rise in interest rates and an appreciation of the Australian dollar.
B. fall in interest rates and a depreciation of the Australian dollar.
C. fall in interest rates and an appreciation of the Australian dollar.
D. rise in interest rates and a depreciation of the Australian dollar.

14. A government budget deficit will shift the ________ curve for loanable funds to the
________ and the equilibrium real interest rate will ________.
A. demand; left; fall
B. supply; left; rise
C. demand; right; rise
D. supply; right; fall

15. Refer to figure opposite.

Suppose the economy had
been at point A and now is at
B. What could have caused
the movement to B?
A. Winter storms cause
factories in the north to be
shut down for several
weeks.
B. Unusually good weather
causes the wheat crop to
be larger than normal.
C. Both the labour force and
the population increased.
D. Government spending increased causing aggregate demand to increase.

16. Suppose the real GDP is $4 trillion, and the government wants to increase real GDP
to $5 trillion. The marginal propensity to consume is 0.8. Which change in
government spending below could generate the extra $1 trillion in real GDP?
(Assume a simple model with no taxation and no imports.
A. $200 billion
B. $400 billion
C. $125 billion
D. $100 billion

17. Suppose the government increases autonomous taxes. This causes

A. disposable income to decrease, which causes consumption spending to
decrease and aggregate expenditures to decrease.
B. government spending to decrease, which causes aggregate expenditures to
decrease.
C. consumption spending to decrease and spending on imports to decrease. The
effect on aggregate expenditure depends on whether domestic spending or
spending on imports decreased the most.
D. disposable income to decrease, which causes aggregate supply to decrease.

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 Economics 100 Exam S2 2013
18. Suppose interest rates changed so that the interest rate is higher in Australia than in
the U.S. The demand curve for
A. U.S. dollars will shift rightward.
B. Australian dollars will shift leftward.
C. Australian and U.S. dollars will remain unchanged.
D. Australian dollars will shift rightward.

19. Which of the following will lead to an appreciation of the Australian dollar against the
Indonesian rupiah?
A. An increase in Indonesian interest rates
B. A decrease in Indonesian demand for Australian assets
C. An increase in Indonesian demand for Australian imports
D. An increase in Australian demand for Indonesian imports

20. Which of the following will lead to a depreciation of the dollar against the Japanese
yen?
A. A decrease in Australian demand for Japanese goods
B. An increase in Japanese demand for Australian imports
C. An increase in Australian interest rates
D. A decrease in Japanese demand for Australian assets

End of Section A
_______________________________________________________________________

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 Economics 100 Exam S2 2013
Section B: Answer any THREE (3) questions. Each question is worth 10 marks.
Use diagrams where appropriate.

1. Using examples, explain each of the following types of market failure

• Negative production externality
• Common resources
• Positive consumption externality
• Public goods
• Moral hazard
In each case, explain why the market ‘fails’ and outline a possible policy
solution. (10 marks)
_______________________________________________________________________

2. a. What is a business cycle? Describe the effects of the business cycle on the
unemployment rate and the inflation rate. (5 marks)

b. Distinguish between the two main types of inflation. Why inflation is considered
a problem? (5 marks)

_______________________________________________________________________

3. What factors determine the value of a country’s currency? Use a diagram to

illustrate an appreciation in the Australian dollar. What factors can cause a
currency to appreciate and what impact would an appreciation have on the
economy? (10 marks)

_______________________________________________________________________

4. a. Distinguish between the money market and the loanable funds market.
(4 marks)
b. Explain how an increase in interest rates by the Reserve Bank affects the
different components of aggregate demand. Why would the Reserve bank
want to raise interest rates? (6 marks)
_______________________________________________________________________

5. a. Explain the distinction between discretionary fiscal policy and automatic

stabilisers. (4 marks)

b. What is government expenditure multiplier? How is it different to the tax

multiplier? Explain, using an example how an increase in government
spending will affect the aggregate demand (AD) curve, the level of GDP and
the price level. (6 marks)

End of Examination Paper

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 Economics 100 Exam S2 2013

Economics 100 Semester 2 2013 Exam

Section A: Multiple Choice Answer sheet

Name: ____________________________ Student ID: ___________________

1 A B C D

2 A B C D

3 A B C D

4 A B C D

5 A B C D

6 A B C D

7 A B C D

8 A B C D

9 A B C D

10 A B C D

11 A B C D

12 A B C D

13 A B C D

14 A B C D

15 A B C D

16 A B C D

17 A B C D

18 A B C D

19 A B C D

20 A B C D

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 Economics 100 Exam S2 2013
Section A – MCQ Answers
1 B

2 A

3 D
4 D

5 C

6 D
7 C

8 A

9 C
10 A
11 C

12 D
13 B
14 B

15 D
16 A
17 A

18 D

19 C
20 D

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