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QUESTION 1 In a situation where monetary policy is changed the transmission mechanism will depend on (A) changes to the structure of the economy over time. (B) asset and wealth values of high-income households. (C) the substitutability of imports and domestic goods and services. (D) whether households and firms respond by saving more now or later.
QUESTION 2 Assume the Australian Government tightens regulations on working holiday visas. The economic effect of this policy would be (ceteris paribus) (A) a fall in the supply of seasonal labour. (B) arise in the supply of seasonal labour. (C) a fall in the demand for seasonal labour. (D) arise in the demand for seasonal labour.
QUESTION 3 In Australia taxation bracket creep (A) (B) (C) (D) is the result of indexing income tax bands to inflation. compensates taxpayers on the threshold taxation levels. raises tax revenue without explicitly increasing tax rates. occurs when tax revenue and expenditure work in opposition.
QUESTION 4 Within a total government budget of $300 billion the planned surplus for the year was $4 billion. In that year the actual budget recorded an unplanned increase of $6 billion in government expenditure. In the following year the planned deficit was $2 billion. This suggests that (A) the budget outcome is expansionary. (B) the budget outcome is contractionary. (C) the government is aiming to repay debt. (D) the government expects a recession in the following year.
QUESTION 5 Assume the hypothetical economic scenario shown. This stimulus has not been published for copyright reasons. Based on this scenario identify the economic management required (ceteris paribus). (A) (B) (C) (D) Reduce oil price inflation by providing a short-term subsidy to the business sector. Reduce overseas cost inflation pressures by delaying government spending. Reduce wage inflation and price pressures by decreasing the cash rate. Reduce expected inflation by introducing an inflation target range.
Difficulty: B
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Paper 1
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2020
QUESTION 6 Which diagram best represents the trade-offs that should be considered with demand management policies at different points of the economic cycle? ( A) LRAS Price level Real GDP (C) Price level Real GDP (B) Price level (D) A LRAS LRAS Real GDP A : AD Real GDP
QUESTION 7 Which statement does not describe a relationship between an equitable distribution of income and economic growth? (A) (B) (C) (D) Higher aggregate supply leads to greater equality of income over time. Economic growth over time may reduce equality of income in market-based economies. Income inequality lowers aggregate demand due to the different propensities to consume. Some level of income inequality should encourage business investment and economic activity.
QUESTION 8 Excerpt from the Reserve Bank of Australia�s Statement on Monetary Policy The increase in interest rates � the first in five years � is necessary to help sustain non-inflationary growth into the future ... Although the timing of the move has been influenced by the latest rise in US interest rates the move itself is driven by the marked turnaround in Australia�s domestic economic conditions. Good growth is expected to continue into the foreseeable future aided by a gradual pick-up in the world economy. Household spending has increased strongly over the past year and should continue to do so in the present climate of rising incomes and confidence. Identify the most likely outcome of the movement in interest rates discussed in the statement. (A) Household consumption levels in Australia would continue to rise. (B) Production pressures in the Australian economy would decrease. (C) The Australian economy would be moved from its equilibrium. (D) The Australian dollar would depreciate against the US dollar.
QUESTION 9 Consider the following data. � Employment in public administration and education has risen by 2.5 percentage points. � Employment in recreation and retail has fallen by 2.3 percentage points. Which statement correctly identifies the economic problem and the response required? Economic problem Policy response Resources are underutilised fiscal policy should be contractionary. monetary policy should be expansionary. aggregate supply policies should be used. Cyclical economic activity is slowing Structural unemployment has decreased Total unemployment has fallen demand management should be neutral.
QUESTION 10 The graph shows estimated taxes paid and transfers received by Australian householders. Total tax and transfers 60 / <7 Key U WB black stripe | |white 40 $ billion (oS) S 7 20 UY LL a 77) V//} 10 / 0 � �' � g�' �' �' � > os VY ed NY ea v * SS Y � Ne Private income ($ thousand) Identify the components of the key in the graph. Company tax Goods and services tax Capital gains tax Family tax benefits Goods and services tax Unemployment benefits Capital gains tax
QUESTION 11 (6 marks) The JobSeeker payment is the main income support payment for Australians over 22 years of age who are unemployed and looking for work. Explain how automatic stabilisers operate and describe how JobSeeker payments stabilise the economic cycle. Draw a diagram in the space provided to support your answer.
QUESTION 12 (9 marks) Hypothetical data and economic information is provided. Index Business and consumer confidence New vehicle sales Australia Australia 20- 1400 10-1 Business confidence 1200 S 1000 07 = 2 800 �~10- = S 600 [o; 207 400 �a0 r | | | | 200 | | | | | YI Y2 Y3 Y4 �5 Yi �2 Y3 Y4 �5 Year Year RESERVE BANK OF AUSTRALIA: � Current cash rate Is 3.5% Analyse the data and economic information to explain the impact on the household sector of a 75 basis point cash rate decrease from the current cash rate (ceteris paribus). Provide two reasons to justify your answer.
QUESTION 13 (9 marks) An economic scenario 1s provided. The 2021/22 federal budget is expected to deliver a deficit of $4.2b at the end of June Export data s 7022. A $7.1b surplus is anticipated the hows coal exports are expected to fall from 2021 to 202 following year. by approximately $70 billion � 2022 (Forecast released May ) (Data released 10 J uly 2022) CPI data shows that movements in the consumer price index (CPI) and the wage price index (WPI) were below 2% for the three years to June 2022. (Data updated 31 July 2022) Use the scenario to explain two relationships and their economic effects. Evaluate the merit of achieving a budget surplus in your answer.
QUESTION 14 (28 marks) Use Stimulus 1-8 in the stimulus book to evaluate whether government intervention to influence either housing demand or housing supply would be more effective in reducing housing price pressures and improving living standards.
Difficulty: A
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Paper 1
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2020
Stimulus 3: This stimulus has not been published for copyright reasons
Stimulus 7: Excerpt from Property Council of Australia "Increasing housing supply" (This stimulus has not been published for copyright reasons)
QUESTION 1 A primary economic objective of the Australian Government�s budget in 2021 was (A) reducing inflation. (B) keeping employment high. (C) maintaining a stable exchange rate. (D) achieving a current account surplus.
QUESTION 2 The results of a cash rate decision are a reduction in interest payments on debt and an increase in the amount of income available for households and businesses. Which channel of the transmission mechanism 1s this cash rate change an example of? (A) savings and investment (B) asset prices and wealth (C) sector income (D) cash flow
QUESTION 3 In contrast to macroeconomic policy microeconomic reform aims to (A) (B) (C) (D) limit government intervention in markets. raise the competitiveness of export businesses. improve the allocative efficiency of resource use. increase long-term growth in gross domestic product.
QUESTION 4 An economy is experiencing decreasing levels of economic activity. A cause for unemployment rates remaining at 5% (ceteris paribus) might be (A) (B) (C) (D) a reduction in the number of hours worked. an increase in unemployment benefits. a rise in the number of school leavers. a delay in workers retiring.
QUESTION 5 Assume the Australian Government has simplified regulations in the medical and pharmaceutical industries. Identify the expected change to the aggregate demand/ageregate supply diagram (ceteris paribus). (A) Average prices rise and GDP decreases because the aggregate supply curve shifts to the left. (B) Average prices fall and GDP increases because the aggregate supply curve shifts to the right. (C) Average prices rise and GDP increases due to an expansionary movement along the aggregate supply curve. (D) Average prices fall and GDP decreases due to a contractionary movement along the aggregate supply curve.
QUESTION 6 Which country would be most likely to experience a longer time lag in economic growth following a cash rate change (ceteris paribus)? (A) acountry where marginal propensity to consume is 0.7 (B) acountry where marginal propensity to import is 0.7 (C) acountry where marginal propensity to invest is 0.7 (D) acountry where marginal propensity to save is 0.7
QUESTION 7 Identify the correct statement. (A) | Increasing the goods and services tax to leads to | an increase in household standard of improve tax efficiency living. (B) | Raising the tax-free threshold to lift leads to | an increase in equity in income household consumption distribution. ) A (C) | Repaying Federal Government debt to leads to | an expansion in short-term economic overseas residents activity. Promoting competition in the financial a reduction in unemployment. industry
QUESTION 8 Assume the current account has shown the trend in the graph for the last 16 quarters. Current account 0 > �5 =| AS) = -10 Ae So �-15 5 oe mo -20 �25 Q1 Q2 Q3 O24 QI Q Q3 O4 QI Q2 Q Q4 QI Q Q3 4 Time (quarters) Which fiscal strategy would be most effective in addressing this issue in Australia (ceteris paribus)? (A) stimulating the economy to encourage spending on domestic goods and services (B) liberalising trade policies to make the economy more competitive (C) replacing overseas borrowing with domestic sources of finance (D) improving the efficiency of the foreign exchange market
QUESTION 9 The images provide information about the economic situation in Country A. Stimulus redacted. Which response to the situation does not represent a sustainable economic policy approach in Country A? (A) (B) (C) (D) an increase in skilled migration to raise technical knowledge and skills an increase in taxation incentives to encourage the delay of retirement an increase in the taxation base to finance pension transfer payments an increase in childcare subsidies to raise workforce participation
Difficulty: B
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Paper 1
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2021
QUESTION 10 The table shows labour market data for an economy. Year Labour force Employed (000) persons (�000) Based on the data in the table fiscal policy measures (A) should be avoided because the number of employed persons has increased. (B) do not need to be changed because the employment rate is unchanged. (C) could be contractionary because the unemployment rate is falling. (D) could be expansionary because the employment rate is rising.
QUESTION 11 (12 marks) Analyse Sources 1-3 in the stimulus book to explain the impact of electricity prices on small and medium-sized businesses over the years 2014 to 2019. Draw a short-term AD/AS diagram in the space provided to support your explanation.
QUESTION 12 (13 marks) Use Sources 4-7 in the stimulus book to evaluate the extent to which monetary policy is the appropriate policy lever to improve economic prosperity for Australian low-income households.
QUESTION 13 (25 marks) Use Sources 8�14 in the stimulus book to evaluate which policy would be a more effective response to Australia�s ageing population: a policy that targets incentives to save for retirement or a policy that targets labour supply.
QUESTION 1 What is the primary aim of microeconomic reform? (A) improve living standards (B) reduce income inequality (C) increase economic efficiency (D) decrease demand-pull inflation
QUESTION 2 The significance of aggregate supply policies in Australia�s economic history was that they (A) increased the availability of local goods and services. (B) maximised sustainable economic growth. (C) achieved short-run employment gains. (D) supported domestic businesses.
QUESTION 3 How is microeconomic reform represented in the aggregate demand / aggregate supply (AD/AS) model? (A) (B) (C) (D) The AS curve shifts to the right and real gross domestic product increases. The AD curve shifts to the right and real gross domestic product increases. There is an expansionary movement along the AS curve and real gross domestic product increases. There is an expansionary movement along the AS and AD curves and real gross domestic product increases.
QUESTION 4 A proposal to change Australia�s GST to a rate of 15% would be aiming to (A) stabilise aggregate demand in the economy. (B) decrease government revenue. (C) contract the economy. (D) broaden the tax base.
QUESTION 5 Assume there is an increase in Australians preferring to rent rather than buy their own home. The effect on the transmission mechanism would be (ceteris paribus) (A) achange to how the transmission mechanism is channelled. (B) a decrease in the effective size of the transmission mechanism. (C) quicker interest rate changes so banks maintain their profit levels. (D) ashorter time frame for the cash rate to be transmitted throughout the economy.
QUESTION 6 Assume the Australian federal treasurer has handed down a deficit budget for the coming fiscal year and subsequently there is a sudden downturn in consumer demand. The most likely change to the budget is (ceteris paribus) (A) no change in unemployment benefit payments and the budget target is still achievable. (B) an increase in unemployment benefit payments and a smaller budget deficit. (C) adecrease in unemployment benefit payments and a smaller budget deficit. (D) an increase in unemployment benefit payments and a larger budget deficit.
QUESTION 7 Australia�s monetary policy is less effective when the economy is (A) (B) (C) (D) recovering because excess production capacity limits employment growth. in a trough because the average propensity to save is high due to lower consumer confidence. in a downturn because political considerations discourage potential reductions in the cash rate. booming because businesses are concerned that interest rates will rise so they reduce their investments.
QUESTION 8 Assume a central bank is concerned that house prices have increased in the past year. Which situation would be most likely to encourage the central bank to increase the official interest rate? (A) Inflation increases from below 1% and housing approvals continue to rise. (B) There is a short-term increase in house purchases causing current consumption to fall. (C) There is a continuous increase in both house prices and consumer debt relative to wage growth. (D) The housing price index increases in capital cities and does not change in other populated areas.
QUESTION 9 Which policy mix is the most appropriate in the following scenario? � Annual consumer price index movement: (Y ) 100 to (Y ) 102. � Nominal gross domestic product movement: (Yo) $9.3 billion to (Y ) $9.5 billion. * Non-accelerating inflationary rate of unemployment: (Yo) 4.5% to (Y ) 4.0%. * Dwelling approvals have fallen slightly from Yq to Yj. (A) expansionary monetary and fiscal policy (B) neutral monetary and fiscal policy stance (C) expansionary monetary policy and neutral fiscal policy stance (D) neutral monetary policy and fiscal policy that contracts the economy
QUESTION 10 This content has not been published for copyright reasons. Based on this hypothetical inflation data for Australia which economic management response would be appropriate at Date A? (A) (B) (C) (D) reduce international interest rates to control imported inflation no response because domestic inflation is within target range reduce the budget deficit to improve local economic forces increase interest rates to slow domestic inflation
Difficulty: C
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Paper 1
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2022
QUESTION 11 (8 marks) Country A is dependent on oil exports. Their major oil destination country has discovered an environmentally sustainable substitute for oil. Explain and illustrate the effect on Country A using two different economic models.
QUESTION 12 (7 marks) These measures are extracts from an Australian federal budget scenario. IE Introduction of a temporary budget repair levy on incomes over $150 000 for three years. Assistance for low-income single parents with a new allowance of $1000 per annum for each child aged 6 to 12. Continuation of the move by the former government to increase the Age Pension age limit to 69 by 1 July 2023 and further increase the Age Pension age limit to 72 by 1 July 2035. A temporary pause on CPI indexation of payments and programs including eligibility thresholds for Family Tax Benefit and JobSeeker; thresholds for the Medicare Levy Surcharge Private Health Insurance Rebate and most Medicare Benefits Schedule fees; and Local Government Financial Assistance Grants. A reduction in the growth of federal hospital and education funding to make the states more accountable for spending and delivery of services. Based on the initiatives presented explain the fiscal stance in this federal budget.
QUESTION 13 (12 marks) The data represents a hypothetical economic situation. Country B: Exports and imports with the major trading partner Year-on-year percentage change in value 6 | | ~~ Key 5 | | HB Exports 4 Imports | 3 | Percentage NO 0 y | 7 | �2 I | | 2013 2014 2015 2016 2017 2018 2019 2020 2021 Central bank interest rates 6 Major trading partner poorer er em ee em em ee ne nn an nana ar a ar ae ann a aaa arr aera ae ee ee 7 Percentage Oo nm I I l l ! I l l l l l | l l I I l l ! | ! ! ed Country B SS 2017 2018 2019 2020 2021 Interpret the trend in Country B�s trade balance to draw a conclusion about whether its own or the major trading partner�s interest rates will have a greater effect on Country B�s economic growth. Assume the exchange rate of Country B is fixed.
QUESTION 14 (28 marks) Sources 1�7 in the stimulus book present the Australian economy in a fictional setting. Analyse Sources 1�7 to evaluate the costs and benefits of changing the monetary policy stance from the perspective of Australian households.
QUESTION 1 At different stages of the business cycle automatic stabilisers always act to (A) change aggregate demand. (B) increase aggregate demand. (C) decrease aggregate demand. (D) maintain aggregate demand.
QUESTION 2 If the Australian Government decided to reintroduce an inheritance tax this policy would (ceteris paribus) (A) increase the budget deficit. (B) raise Australia’s foreign debt. (C) improve the distribution of income and wealth. (D) encourage people to save for their retirement income.
QUESTION 3 A movement in the cash rate from 3% to 4.5% is equal to (A) 0.15 percentage points. (B) 150 basis points. (C) 150 per cent. (D) 15 per cent.
QUESTION 4 Inflation targeting (A) guarantees that inflation remains within a band of 2% to 3%. (B) assists with managing an economy’s inflation expectations. (C) encourages the banking sector to pass on rate changes. (D) is most effective with cost-push inflation issues.
QUESTION 5 Assume the government significantly increases excise taxes on fuels to encourage more electric vehicles. How will this initiative affect the Australian economy? (A) increase domestic-based inflation (B) increase the supply of electric cars (C) raise employment in the Australian car industry (D) raise transportation costs of fruit and vegetables
QUESTION 6 To improve housing affordability a government plans to release more land for houses and introduce a first home owners’ grant. The likely impact is that house prices (A) should increase. (B) should decrease. (C) cannot be predicted. (D) would remain unchanged.
QUESTION 7 Capital goods Consumer goods The movement of an economy from point A to point B could be attributed to (A) moving manufacturing and research and development projects overseas. (B) increasing productivity in export-focused industries and technology change. (C) reducing investment in manufacturing and reducing cyclical unemployment. (D) an overseas supply chain issue changing production of consumer and capital goods.
QUESTION 8 If the Reserve Bank of Australia increases interest rates relative to our trading partners it will cause (ceteris paribus) (A) adepreciating effect on the exchange rate. (B) areduction in the federal budget deficit. (C) an inflow of foreign financial capital. (D) a decrease in export prices.
QUESTION 9 A government is interpreting a model of a labour supply curve in a highly developed economy. E: Wage rate = L L3 Ly Hours worked Assuming the average wage moves from W to W employees’ marginal propensity to consume leisure will (A) increase. (B) decrease. (C) remain constant. (D) decrease at an increasing rate.
QUESTION 10 The data shows an economic scenario over a three-year period. Nominal GDP (¢ billion) Budget surplus ($ billion) Which economic policies would improve this situation? (A) raising the age pension and increasing income taxes (B) selling government assets and reducing retirement age (C) increasing retirement age and decreasing health expenditure (D) increasing job seeker payments and decreasing income taxes
QUESTION 11 (4 marks) Explain one way that monetary policy is transmitted through the Australian economy following a rise in interest rates.
QUESTION 12 (4 marks) Assume the graph represents a recent event experienced by the Australian economy that required economic management. Price level Yo Yep Real GDP Explain a likely cause and short-term effect of the event.
QUESTION 13 (8 marks) Assume that the economy is at point A on the economic cycle and the Australian Government is considering its fiscal policy response. Real GDP Time Explain what is happening with income tax receipts at point A and whether income tax should be reduced.
QUESTION 14 (13 marks) The data and information shown represent an economic issue in Australia. Superannuation is a percentage payment from current income by an employee. The purpose is to save for a future income in retirement. Policy option 1 Policy option 2 Women given incentive to top up One-off taxation levy for low personal superannuation accounts superannuation balances Five-year income tax discount to older All Australians pay a one-off additional women if they pay significantly more into tax on their 2024 income to fix an their superannuation fund each year ... identified inequity ... 100 Compulsory 2S 90 } 2 oS superannuation =Q 80 introduced “HO 70 in 1992* S's 0 a : © c 62 90 z$ 40 Cc Be 30 Eg 20 2a 10 0 . . ; Baby boomer Generation X Millennial (born before 1965) (born before 1980) (born before 1995) * The introduction of compulsory superannuation in 1992 incentivised more Australians to save for their retirement. The nature of compounding magnifies the effect of early contributions to superannuation. Estimated work arrangements in Australia 1990 2020 es Analyse the economic issue indicated in the data and economic information provided. Which policy option should the government implement to improve equity in economic prosperity for all Australians?
QUESTION 15 (22 marks) Use all Sources 1—8 in the stimulus book to prepare your response. Explain the rationale for the scenario presented to reduce payroll tax in Australia. Evaluate the benefits and costs using the perspectives of households businesses and government.
QUESTION 1 What is the fundamental role of fiscal policy? (A) controlling the budget deficit (B) establishing automatic stabilisers (C) reducing government regulations (D) making revenue and expenditure decisions
QUESTION 2 Of the following microeconomic reforms which is most likely to reduce unemployment? (A) (B) (C) (D) increasing the minimum wage increasing unemployment benefits increasing tariffs on imported goods increasing protection against unfair dismissal
QUESTION 3 Which of the following Australian Federal Government policy decisions would increase inflationary pressures (ceteris paribus)? (A) raising personal income taxes (B) setting a surplus federal budget (C) appreciating the Australian dollar (D) increasing government expenditure
QUESTION 4 Which of the following is an example of a time lag when policymakers decide on a fiscal course of action? (A) the time between the removal of government subsidies and the onset of higher unemployment (B) the time taken for the government to reduce the company tax to encourage business investment (C) the time between the government authorising additional health expenditure and the building of a hospital (D) the time taken for the government to decide how best to reduce the economic impact of a natural disaster
QUESTION 5 Identify the most likely effect of a government decision to finance a budget deficit by borrowing from domestic sources (ceteris paribus). (A) The exchange rate of the Australian dollar will depreciate. (B) Australian interest payments on foreign debt will fall. (C) Money supply in Australia will increase. (D) Interest rates in Australia will rise.
QUESTION 6 Identify the sign of external instability in the Statement on Monetary Policy ceteris paribus. (A) (B) (C) (D) increases and decreases in the exchange rate lifting disposable income and consequent spending China�s higher demand for exports and commodity prices effects of the cash rate reduction on households and local businesses
QUESTION 7 From the information in the excerpt above what was the most likely position of the Australian economy on the economic cycle shown below when this statement was made? (A) Point A io (B) Point B (C) Poimt C (D) Point D Underlying growth trend Time � Public use �
QUESTION 8 Which of the following best represents the effect of the Reserve Bank of Australia reducing the cash rate? (A) return on investments reduced cost of investing increased (B) house repayments reduced housing borrowing increased (C) spending decreased rate of savings increased (D) inflation reduced import prices increased
QUESTION 9 The Federal Government aims to reduce high unemployment levels. Which combination of aggregate supply and aggregate demand policies would best achieve this? Aggregate supply Aggregate demand (A) lower fuel excise and | reduce net foreign debt (B) increase the minimum wage and | remove skill restrictions on immigration (C) fund research and development and | reduce the rate of GST (D) raise revenue from the sale of government and increase quotas on imports of primary assets products
QUESTION 10 Identify the graph that shows the expected immediate effect of the transmission mechanism on real GDP following an increase in interest rates. (A) (B) Average P price level p Average price level Real GDP (C) (D) Average P price level p Average P price level P 2 Q: Real GDP Real GDP
QUESTION 11 (7 marks) Explain how a microeconomic policy could be used to improve living standards. Draw a production possibility curve diagram below to support your explanation.
QUESTION 12 (5 marks) Unemployment rate (Australia) 22 | | 18 I Aged 15-24 4 | D 14 i oD l 3 =| 3 10 5 I rove l 6 : Total ; | 1983 1990 1997 2004 2011 2018 Explain why and how the Federal Government intervened in the economy in 1991. Use evidence from the graph to support your answer.
QUESTION 13 (11 marks) Read the following excerpts from a newspaper article about the Australian economy. Consumer confidence fell in December and unless consumers continue spending the recovery could be jeopardised. Australians spend excessively and do not save adequately therefore adversely affecting the nation�s economic health. The government is considering personal income tax cuts to stimulate economic growth. Use the information above to evaluate the impact on economic growth of targeting a certain sector for tax relief.
QUESTION 14 (7 marks) Use Stimulus 1 2 and 3 in the stimulus book to analyse how the manufacturing industry has impacted the Australian economy.
QUESTION 15 (20 marks) Use Stimulus 4�9 in the stimulus book to evaluate the effectiveness of a microeconomic policy response that promotes long-term economic growth based on the manufacturing industry.
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