Section I Multiple choice (20 marks)

1. The table shows selected data for an economy

Balance of Payment items $ billion ($bn)

Exports 300

Imports 380

Net services -60

Net income -220

Net current transfers 70

According to the data, which statement is correct for an economy with a floating
exchange rate?

(A) There is a deficit of $430bn on the current account

(B) There is a surplus of $430bn on the current account

(C) There is a deficit of $290bn on the capital and financial account

(D) There is a surplus of $290bn on the capital and financial account

2. Which of the following may cause a depreciation of the Australian dollar?

(A) World commodity prices increase

(B) Australia’s interest rates increase relative to overseas interest rates

(C) Imports into Australia increase

(D) Foreign investors purchase an Australian firm

3. An economy is a net importer of manufactured goods and a net exporter of commodities.

Which of the following will lead to an improvement in its terms of trade?

(A) The prices for commodities increase relative to prices for manufactured goods on
world markets

(B) The prices for manufactured goods increase relative to commodity prices on world
markets

(C) The volume of manufactured exports increases relative to the volume of commodity
imports

(D) The volume of manufactured exports decreases relative to the volume of commodity
imports
4. Which international organisation is focused on granting loans to developing countries to
reduce poverty and encourage development?

(A) World Bank

(B) World Trade Organisation

(C) International Monetary Fund

(D) Organisation for Economic Cooperation and Development

5. What would be the likely impact on an economy if the government increased subsidies to
its domestic car industry?

(A) The domestic price of cars would decrease.

(B) The market share of domestic producers would decline

(C) The supply of cars in the domestic market would decrease

(D) Foreign producers would find it easier to access the domestic market

6. Under a floating exchange rate system, what would be the likely effect of a rise in
Australia’s inflation rate relative to the average rate of inflation of Australia’s major
trading partners?

(A) An increase in the demand for the Australian dollar

(B) A deterioration in the balance on Australia’s current account

(C) An increase in demand for Australian exports

(D) An improvement in Australia’s net goods

7. Which of the following could be recorded as debit in the current account of the
Australian balance of payments?

(A) Expenditure on exports

(B) Dividends paid to foreign investors

(C) Interest paid to Australian lenders

(D) Foreign aid from the Australian government for capital works in Indonesia
8. The diagram shows the impact of a change in the quota for imported cars.

S S 1
D

Price

D
S S1

0
Quantity
According to the diagram, what are the effects of a movement in the supply curve from
SS to S1S1?

(A) The quota has decreased and local car producers face more competition

(B) The quota has decreased and local car producers face less competition

(C) The quota has increased and local car producers face more competition

(D) The quota has increased and local car producers face less competition

9. The table shows selected data for an economy.

Real GDP ($bn) Net foreign liabilities ($bn) Net foreign debt ($bn)
1430 850 600

What is the value of net foreign equity as a percentage of real GDP?

(A) 15.6%

(B) 24.5%

(C) 31.1%

(D) 57.9%
10. The table shows the relative weights allocated to currency of Australia’s major trading
partners.

Currency
Relative weights

Year 1 Year 2

Chinese Renminbi 19.1 22.5

Japanese Yen 17.8 15.2

United States Dollar 14.9 16.3

European Euro 11.5 9.8

Which of the following is a possible explanation for the movement in the relative weights
of the currencies of Australia’s trading partners?

(A) The implementation of a free trade agreement between Australia and Japan

(B) An increase in the volume of Australia’s trade with China

(C) A reduction in goods imported from the United States

(D) An increase in Australia’s demand for traded commodities from Europe

11. The table shows selected data for an economy

Year Export Price Index Import Price Index

2 110 102

3 113 108

Which of the following statements about this nation’s terms of trade is correct?

(A) Terms of trade improved from Year 1 through to Year 3

(B) Terms of trade deteriorated from Year 1 through to Year 3

(C) Terms of trade deteriorated from Year 1 to Year 2 and then improved from Year 2 to
Year 3

(D) Terms of trade improved from Year 1 to Year 2 and then deteriorated from Year 2 to
Year 3
12. The table shows the human development index (HDI) values for two countries.

Country HDI
A 0.3
B 0.9

Which statement is most consistent with the HDI data given?

(A) The level of urbanisation is greater in Country A than Country B

(B) The population growth rate in Country B is higher than in Country A

(C) Economic growth is greater in Country B than in Country A

(D) Economic development is greater in Country B than in Country A

13. Which of the following best defines globalisation?

(A) All countries in the world that produce goods and services

(B) Total output in the global economy

(C) Increasing economic integration of countries

(D) Fluctuations in global economic activity

14. Which of the following best describes Australia’s profile as a trading nation?

(A) Commodities importer and manufacturing goods exporter

(B) Commodities and manufacturing goods importer

(C) Commodities and manufacturing goods exporter

(D) Commodities exporter and manufacturing goods importer

15. In which account in Australia’s Balance of Payments would reserve assets and portfolion
investment transactions be recorded?

(A) Capital

(B) Current

(C) Financial

(D) Net incomes

Price of $A D1
in terms of
foreign S
currencies

D
1.05

1.00

D1
S D

0 Q0 Q1 Quantity of $A

Which of the following statements is a likely cause of the movement of the demand curve
for Australian dollars from DD to D1D1?

(A) More Australian travelling abroad

(B) A deterioration in Australia’s Terms of Trade

(C) An increase in Australia’s interest rates relative to the rest of the world

(D) The Reserve Bank selling $A on the FOREX market

17. Which of the following is an economic argument for protection

(A) Resources are misallocated

(B) Reduce the risk of dumping of foreign products

(C) Increase levels of productivity in the domestic economy

(D) Reduce prices of foreign goods and services

18. Which statement best illustrates the effects of a subsidy on domestic production

(A) A subsidy decreases the supply of the domestic good and lowers the price

(B) A subsidy decreases the supply of the domestic good and increases the price

(C) A subsidy increases the supply of the domestic good and lowers the price

(D) A subsidy increases the supply of the domestic good and increases the price
19. The graph shows the impact of the introduction of a tariff.

Which of the following describes the impact of introducing this tariff?

(A) Demand for the good increased from Q3 to Q1

(B) Government revenue increased by the rectangle EFGH

(C) Domestic firms market share decreased from Q2 to Q

(D) Resource allocation improved as the demand for the imported products contracted
from QQ1 to Q2Q3

20. Which of the following indicates international convergence?

(A) Dismantling of internationally-based trade agreements

(B) Widening gaps between developed and developing economies

(C) Rising interest rates around the globe

(D) Increases in the international mobility of labour

__________________________________________________________________________________

__________________________________________________________________________________

__________________________________________________________________________________

__________________________________________________________________________________

b) Distinguish between economic growth and economic development. (2 marks)

__________________________________________________________________________________

__________________________________________________________________________________

__________________________________________________________________________________

__________________________________________________________________________________

__________________________________________________________________________________

__________________________________________________________________________________

c) Describe the role of ONE international organisation in creating greater economic integration.
(2 marks)

__________________________________________________________________________________

__________________________________________________________________________________

__________________________________________________________________________________

__________________________________________________________________________________

__________________________________________________________________________________

__________________________________________________________________________________
 d) Explain ONE development strategy which led to high rates of economic growth in emerging
economies. (4 marks)

__________________________________________________________________________________

__________________________________________________________________________________

__________________________________________________________________________________

__________________________________________________________________________________

__________________________________________________________________________________

__________________________________________________________________________________

__________________________________________________________________________________

__________________________________________________________________________________

__________________________________________________________________________________
Question 22

a) What is meant by the term the promotion of freer trade? (2 mark)

__________________________________________________________________________________

__________________________________________________________________________________

__________________________________________________________________________________

__________________________________________________________________________________

b) Explain Australia’s involvement in ONE bilateral and ONE multilateral agreement. (4 marks)

__________________________________________________________________________________

__________________________________________________________________________________

__________________________________________________________________________________

__________________________________________________________________________________

__________________________________________________________________________________

__________________________________________________________________________________

c) Explain how Australia’s free trade policies have impacted on Australian individuals and firms.
(4 marks)

__________________________________________________________________________________

__________________________________________________________________________________

__________________________________________________________________________________

__________________________________________________________________________________

__________________________________________________________________________________

__________________________________________________________________________________

__________________________________________________________________________________

__________________________________________________________________________________

__________________________________________________________________________________

__________________________________________________________________________________
Question 23

(a) The graph shows the market for A$ in terms of US$

On the diagram, draw the new equilibrium which results when foreign companies buy shares in
Australian companies.
Label the new equilibrium exchange rate and quantity, E1 and Q1. (2 Marks)

(b) Analyse how increasing interest rates by the Reserve Bank of Australia may influence the
value of the exchange rate and the Balance of Payments. (5 marks)

__________________________________________________________________________________

__________________________________________________________________________________

__________________________________________________________________________________

__________________________________________________________________________________

__________________________________________________________________________________

__________________________________________________________________________________

__________________________________________________________________________________

__________________________________________________________________________________

__________________________________________________________________________________

__________________________________________________________________________________
 (c) Using the stimulus briefly explain why TWI is a more accurate measurement of the
Australian dollar. (3 marks)

__________________________________________________________________________________

__________________________________________________________________________________

__________________________________________________________________________________

__________________________________________________________________________________

__________________________________________________________________________________

__________________________________________________________________________________

__________________________________________________________________________________

__________________________________________________________________________________
Attempt either Question 25 or Question 26

Answer the question in a writing booklet. 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
__________________________________________________________________________________

Question25

Analyse recent trends in Australia’s persistent current account deficit.

OR

Question 26

Discuss how the exchange rate influences Australia’s Balance of Payments and its impact
on the Australian economy.
Attempt either Question 25 or Question 26

Answer the question in a writing booklet. 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
__________________________________________________________________________________

Question25

Discuss the economic impacts of Australia’s persistent current account deficit.

OR
Question 26

Discuss how the exchange rate influences Australia’s Balance of Payment and the Australian
economy.