1 With regard to real GDP, which of the following statements is correct It is defined as the value of final goods and services produced in a given year when valued at the prices of a reference base year It moves with changes in the value of goods and services produced It is defined as the value of final goods and services produced in a given year when valued at the prices of the current year It is the preferred measure of economic growth because it takes into account the influence of aggregate price level increase, or inflation 2 Consider the following data from the national accounts in a country in a given year Category$ billionsGDP1500Investment450Government spending130Exports120Imports70 Calculate the total consumption for this country $970 billion $870 billion $730 billion $1,110 billion 3 Which of the following statements is correct (There may be more than one correct answer) The labour force is the sum of employed and unemployed people who are actively looking for jobs Okun's Law shows a negative relationship between the change in the unemployment rate and the GDP or output growth Consumer price index (CPI) measure includes the quantities of various goods and services normally purchased in a given country 4 A recent ABS Labour Force Survey contained the following information Employed persons ('000)12,000Unemployment rate ( )5 3 Calculate the number of unemployed persons (round to the closest number) 203 708 492 672 5 Suppose a 1 decrease in the unemployment rate is associated with a 1 increase in the inflation rate now, but 2 increase in the inflation rate 10 years ago What does this mean The Okun's Law relationship is flatter The Phillips curve relationship is flatter The Phillips curve relationship is steeper The Okun's Law relationship is steeper 6 Suppose the exchange rate between the Australian dollar and the Euro is 0 55 Euro AU$ If the price of a pint of Guinness in Dublin is 7 Euro, how much does it cost in terms of Australian dollar 3 85 AU$ 9 55 AU$ 0 079 AU$ 12 73 AU$ 11 5 AU$ 7 Suppose that an economy adopts an inflation targeting framework but is operating under a fixed exchange rate regime Why are these two policies incompatible Inflation targeting policy necessitates changes in the cash rate from time to time, which would cause the exchange rates to fluctuate Under a fixed exchange rate regime, the Reserve Bank is more powerful and can better control the money supply The 1959 Reserve Bank Act forbids the Reserve Bank from jointly implementing the two policies Under inflation targeting, inflation is always constant and equal to the target, which cannot occur under a fixed exchange rate regime 8 In 2001, the exchange rate for the Australian dollar against the US dollar was 0 48 (meaning one Australian dollar was equal to 0 48 US dollars) In 2011, through various market forces, the exchange rate was 1 1 We can therefore say that the Australian dollar has appreciated depreciated been devalued been re valued 9 Which of the following best describes the exchange rate regime in Australia from 1971 1983 Managed floating exchange rate regime Freely floating exchange rate regime Fixed exchange rate regime under a currency board system Fixed exchange rate regime, with the AU$ pegged to the US$ and then to a basket of currencies Fixed exchange rate regime within the Bretton Woods system 10 Under a fixed exchange rate regime, the Reserve Bank cannot conduct an expansionary or contractionary monetary policy because the Reserve Bank lacks credibility in its monetary policymaking the cash rate and the exchange rates are not influenced by market forces under a fixed exchange rate regime changes in the cash rate and other interest rates would affect the relative demand of the Australian dollar, and hence, cause the exchange rates to fluctuate changes in the cash rate would not affect other market interest rates 11 To increase the money supply in the economy, the Reserve Bank sets a cash rate target and conducts an open market operation This policy action is normally referred to as lower an expansionary monetary policy higher an expansionary monetary policy higher a monetary policy easing higher a contractionary monetary policy lower a monetary policy tightening 12 Which of the following is NOT a transmission channel of monetary policy Saving investment channel Cash flow channel Exchange rate channel Construction channel Expectations channel 13 If the inflation rate is currently above the target rate, the Reserve Bank should conduct a an monetary policy to stabilize inflation In an AS AD diagram, this policy can be represented by a shift of the AD curve to the expansionary left expansionary right contractionary left contractionary right 14 Which of the following would NOT shift the AD (aggregate demand) curve, all else equal A demand shock A shift in expected output An expansionary monetary policy conducted by a central bank A shift in natural level of output 15 According to the AS AD framework with an upward sloping AS curve and a vertical AD curve, a negative supply shock would result in lower output level and lower inflation rate higher output level and lower inflation rate higher output level and higher inflation rate lower output level and higher inflation rate 16 Suppose that the inflation rate is currently equal to its target and output is at its potential level If the economy is hit by a supply shock that raises inflation but lowers output, the Reserve Bank can stabilise output by conducting a contractionary monetary policy, but inflation is further away from the target stabilise inflation by conducting an expansionary monetary policy, but output is further away from its potential level stabilise inflation by conducting a contractionary monetary policy, but output is further away from its potential level stabilise both inflation and output by conducting an expansionary monetary policy stabilise both inflation and output by conducting a contractionary monetary policy 17 Consider the following AS AD diagram, with an upward sloping AS curve and a downward sloping AD curve The economy is currently at point A where output is equal to pmb Y 1 Y1 Y1 and inflation is equal to pmb pi 1 1 1 pmb overline Y Y Y and pmb overline pi are the natural output level and the inflation target, respectively The central bank is tasked to keep inflation equal to its target and output equal to its potential level if possible In this scenario, a contractionary monetary policy would cause the central bank to its inflation objective and its output objective This is represented by a shift of the AD curve to the meet meet right miss meet left meet miss right meet miss left meet meet left 18 If the domestic and the foreign interest rates are 8 and 12 respectively, then according to interest rate parity foreign currency is expected to depreciate by 2 foreign currency is expected to appreciate by 2 foreign currency is expected to appreciate by 4 foreign currency is expected to depreciate by 4 19 Compared to the AS AD framework in the absence of the exchange rate effect, a contractionary monetary policy in the extended AS AD framework (where exchange rate may depreciate or appreciate) causes a further decrease in equilibrium output and a smaller decrease in inflation smaller decreases in both equilibrium output and inflation a smaller decrease in equilibrium output and a further decrease in inflation further decreases in both equilibrium output and inflation 20 According to the extended AS AD framework, a contractionary monetary policy shifts the AD curve , which leads to , and rightward, lower inflation, output contraction, exchange rate appreciation rightward, higher inflation, output expansion, exchange rate depreciation leftward, lower inflation, output contraction, exchange rate appreciation leftward, lower inflation, output expansion, exchange rate depreciation 21 Which of the following is not part of the commonwealth government spending Firms' investment in infrastructure Spending on defence Spending on education Spending on health 22 What is the gross debt to GDP ratio that is considered by IMF as a prudential limit for developed countries 60 50 70 40 23 What does a government budget deficit imply Government revenue is less than government spending Government debt has been increasing Government debt to GDP ratio has been increasing 24 The allocation function of fiscal policy involves Higher tax rate to high income earners Increased government spending on infrastructure Decreased interest rate to improve business investments Welfare payments to unemployed workers 25 Suppose that the actual output or GDP in the economy is below the potential or trend GDP, the government will try to stimulate the economy by conducting a that will result in fiscal expansion higher output and lower inflation fiscal contraction higher output and higher inflation fiscal expansion higher output and higher inflation fiscal contraction higher output and lower inflation 26 According to the modified AS AD framework with an upward sloping AS and a vertical AD, if the government decides to increase taxes and decrease government spending simultaneously by the same amount, what would be the effect to the economy's equilibrium Both output level and inflation rate remain unchanged Both output level and inflation rate increase Both output level and inflation rate decrease Not enough information to confirm 27 Which of the following increases aggregate demand Decreased taxes Decreased government spending Increased interest rate Decreased money supply 28 In 2004, following an economic boom experienced by the Australian government due to a worldwide economic expansion, the Reserve Bank and the government respectively adopted expansionary monetary policy and expansionary fiscal policy contractionary monetary policy and contractionary fiscal policy contractionary monetary policy and expansionary fiscal policy expansionary monetary policy and contractionary fiscal policy 29 From 2009 to 2012, together with the loose fiscal and loose monetary policy mix adopted by the government and the Reserve Bank, there was a sustained rise in the world oil price What were the effects of the policy mix together with the world oil price increase to economic equilibrium AD shifted leftward AS shifted downward lower output and higher inflation in equilibrium AD shifted rightward AS shifted downward lower output and higher inflation in equilibrium AD shifted leftward AS shifted upward higher output and higher inflation in equilibrium AD shifted rightward AS shifted upward lower output and lower inflation in equilibrium AD shifted rightward AS shifted upward lower output and higher inflation in equilibrium 30 The impacts of the Global Financial Crisis were least severe in which country Greece European countries Australia The United States 31 The financial crisis of 2007 08 started in the US, but quickly spread to other countries What's a primary reason behind the spread Foreign banks had bought securities based on US sub prime mortgages Banks in developing economies are not exposed to US sub prime mortgage markets European banks were taken into public ownership Bank of China had lent massively to sub prime borrowers in the USA 32 Which of the following is NOT a factor responsible for the financial crisis from 2007 2008 Foreign banks had bought a large amount of securities based on US sub prime mortgages The Chinese government buying too many US government bonds Banks and other lenders were willing to issue risky mortgages and loans, many of which were sub prime mortgages The lack of regulation and oversight of the shadow banking system as well as the overall financial system 33 Which of the following occurred in the build up to the GFC The ratio of U S households mortgage debts to house values increased significantly The U S housing market was booming and house prices grew strongly Various financial innovations e g the issuance of mortgage or asset backed securities All of the above 34 Following the onset of the global financial crisis in 2007 08, the US Federal Reserve and various other central banks conducted monetary policy easing This involved them purchasing mortgage backed securities cutting the policy rates buying government bonds providing liquidity to banks and other financial institutions 35 Which of the following was NOT a countermeasure implemented to address the global financial crisis in 2007 08 Buying government bonds Allowing tax rebates for low and middle income US households Banning investment banks from taking deposits Cutting the policy rates 36 Australia's export sector remained strong during the financial crisis because (There may be more than one correct answer ) Australia's exports to China grew strongly due to large demand from China Australia did not trade with the US and other countries which were heavily affected by the crisis the Australian dollar depreciated which made Australia's exports relatively cheaper 37 Which of the following did NOT contribute to the relatively good performance of Australian economy during the financial crisis Australian banks mostly focused on domestic lending business and hence were not exposed to the subprime mortgage crisis Australia's housing market did not experience any extended bubble or boom prior to crisis Australian banks could borrow easily from the Reserve Bank which helped them cover their short term liabilities 38 Due to the mild impacts of the financial crisis on Australian economy, it was not necessary for the country to (There may be more than one correct answer ) cut the cash rate to zero percent cut back the interest rate employ quantitative easing 39 According to our AS AD framework, if the Reserve Bank implemented an expansionary monetary policy but the commonwealth government chose to sit tight and do nothing in response to the GFC, what would have been the likely scenario The shift in the AD curve would have been larger compared to when the government implemented an expansionary fiscal policy Output would have expanded by more compared to when the government implemented an expansionary fiscal policy The shift in the AD curve would have been smaller compared to when the government implemented an expansionary fiscal policy 40 Fill in the blanks If the government runs a budget surplus in a given financial year, it must be the case that its spending is than its revenue and its debt has higher increased higher decreased lower increased lower decreased

Question

1  With regard to real GDP, which of the following statements is correct  It is defined as the value of final goods and services produced in a given year when valued at the prices of a reference base year  It moves with changes in the value of goods and services produced  It is defined as the value of final goods and services produced in a given year when valued at the prices of the current year It is the preferred measure of economic growth because it takes into account the influence of aggregate price level increase, or inflation  2  Consider the following data from the national accounts in a country in a given year  Category$ billionsGDP1500Investment450Government spending130Exports120Imports70 Calculate the total consumption for this country  $970 billion $870 billion $730 billion $1,110 billion 3  Which of the following statements is correct  (There may be more than one correct answer) The labour force is the sum of employed and unemployed people who are actively looking for jobs  Okun's Law shows a negative relationship between the change in the unemployment rate and the GDP or output growth  Consumer price index (CPI) measure includes the quantities of various goods and services normally purchased in a given country  4  A recent ABS Labour Force Survey contained the following information  Employed persons ('000)12,000Unemployment rate ( )5 3 Calculate the number of unemployed persons (round to the closest number)  203 708 492 672 5  Suppose a 1  decrease in the unemployment rate is associated with a 1  increase in the inflation rate now, but 2  increase in the inflation rate 10 years ago  What does this mean  The Okun's Law relationship is flatter The Phillips curve relationship is flatter The Phillips curve relationship is steeper The Okun's Law relationship is steeper 6  Suppose the exchange rate between the Australian dollar and the Euro is 0 55 Euro AU$  If the price of a pint of Guinness in Dublin is 7 Euro, how much does it cost in terms of Australian dollar  3 85 AU$ 9 55 AU$ 0 079 AU$ 12 73 AU$ 11 5 AU$ 7  Suppose that an economy adopts an inflation targeting framework but is operating under a fixed exchange rate regime  Why are these two policies incompatible  Inflation targeting policy necessitates changes in the cash rate from time to time, which would cause the exchange rates to fluctuate  Under a fixed exchange rate regime, the Reserve Bank is more powerful and can better control the money supply  The 1959 Reserve Bank Act forbids the Reserve Bank from jointly implementing the two policies Under inflation targeting, inflation is always constant and equal to the target, which cannot occur under a fixed exchange rate regime 8  In 2001, the exchange rate for the Australian dollar against the US dollar was 0 48 (meaning one Australian dollar was equal to 0 48 US dollars)  In 2011, through various market forces, the exchange rate was 1 1  We can therefore say that the Australian dollar has  appreciated depreciated been devalued been re valued 9  Which of the following best describes the exchange rate regime in Australia from 1971 1983  Managed floating exchange rate regime Freely floating exchange rate regime Fixed exchange rate regime under a currency board system Fixed exchange rate regime, with the AU$ pegged to the US$ and then to a basket of currencies Fixed exchange rate regime within the Bretton Woods system 10  Under a fixed exchange rate regime, the Reserve Bank cannot conduct an expansionary or contractionary monetary policy because  the Reserve Bank lacks credibility in its monetary policymaking  the cash rate and the exchange rates are not influenced by market forces under a fixed exchange rate regime  changes in the cash rate and other interest rates would affect the relative demand of the Australian dollar, and hence, cause the exchange rates to fluctuate  changes in the cash rate would not affect other market interest rates  11  To increase the money supply in the economy, the Reserve Bank sets a       cash rate target and conducts an open market operation  This policy action is normally referred to as               lower  an expansionary monetary policy higher  an expansionary monetary policy higher  a monetary policy easing higher  a contractionary monetary policy lower  a monetary policy tightening 12  Which of the following is NOT a transmission channel of monetary policy  Saving investment channel Cash flow channel Exchange rate channel Construction channel Expectations channel 13  If the inflation rate is currently above the target rate, the Reserve Bank should conduct a an         monetary policy to stabilize inflation  In an AS AD diagram, this policy can be represented by a shift of the AD curve to the         expansionary  left expansionary  right contractionary  left contractionary  right 14  Which of the following would NOT shift the AD (aggregate demand) curve, all else equal  A demand shock A shift in expected output An expansionary monetary policy conducted by a central bank A shift in natural level of output 15  According to the AS AD framework with an upward sloping AS curve and a vertical AD curve, a negative supply shock would result in  lower output level and lower inflation rate  higher output level and lower inflation rate  higher output level and higher inflation rate  lower output level and higher inflation rate  16  Suppose that the inflation rate is currently equal to its target and output is at its potential level  If the economy is hit by a supply shock that raises inflation but lowers output, the Reserve Bank can  stabilise output by conducting a contractionary monetary policy, but inflation is further away from the target stabilise inflation by conducting an expansionary monetary policy, but output is further away from its potential level stabilise inflation by conducting a contractionary monetary policy, but output is further away from its potential level stabilise both inflation and output by conducting an expansionary monetary policy stabilise both inflation and output by conducting a contractionary monetary policy 17  Consider the following AS AD diagram, with an upward sloping AS curve and a downward sloping AD curve  The economy is currently at point A where output is equal to pmb Y 1  Y1 Y1 and inflation is equal to pmb  pi 1  1 1    pmb  overline Y   Y Y and pmb  overline  pi   are the natural output level and the inflation target, respectively The central bank is tasked to keep inflation equal to its target and output equal to its potential level if possible  In this scenario, a contractionary monetary policy would cause the central bank to       its inflation objective and       its output objective  This is represented by a shift of the AD curve to the        meet  meet  right miss  meet  left meet  miss  right meet  miss  left meet  meet  left 18  If the domestic and the foreign interest rates are 8  and 12  respectively, then according to interest rate parity  foreign currency is expected to depreciate by 2  foreign currency is expected to appreciate by 2  foreign currency is expected to appreciate by 4  foreign currency is expected to depreciate by 4  19  Compared to the AS AD framework in the absence of the exchange rate effect, a contractionary monetary policy in the extended AS AD framework (where exchange rate may depreciate or appreciate) causes  a further decrease in equilibrium output and a smaller decrease in inflation  smaller decreases in both equilibrium output and inflation  a smaller decrease in equilibrium output and a further decrease in inflation  further decreases in both equilibrium output and inflation  20  According to the extended AS AD framework, a contractionary monetary policy shifts the AD curve       , which leads to        ,         and          rightward, lower inflation, output contraction, exchange rate appreciation  rightward, higher inflation, output expansion, exchange rate depreciation  leftward, lower inflation, output contraction, exchange rate appreciation  leftward, lower inflation, output expansion, exchange rate depreciation  21  Which of the following is not part of the commonwealth government spending  Firms' investment in infrastructure Spending on defence Spending on education Spending on health 22  What is the gross debt to GDP ratio that is considered by IMF as a prudential limit for developed countries  60  50  70  40  23  What does a government budget deficit imply  Government revenue is less than government spending  Government debt has been increasing  Government debt to GDP ratio has been increasing  24  The allocation function of fiscal policy involves  Higher tax rate to high income earners  Increased government spending on infrastructure  Decreased interest rate to improve business investments  Welfare payments to unemployed workers  25  Suppose that the actual output or GDP in the economy is below the potential or trend GDP, the government will try to stimulate the economy by conducting a that will result in   fiscal expansion  higher output and lower inflation fiscal contraction  higher output and higher inflation fiscal expansion  higher output and higher inflation fiscal contraction  higher output and lower inflation 26  According to the modified AS AD framework with an upward sloping AS and a vertical AD, if the government decides to increase taxes and decrease government spending simultaneously by the same amount, what would be the effect to the economy's equilibrium  Both output level and inflation rate remain unchanged  Both output level and inflation rate increase  Both output level and inflation rate decrease  Not enough information to confirm  27  Which of the following increases aggregate demand  Decreased taxes Decreased government spending Increased interest rate Decreased money supply 28  In 2004, following an economic boom experienced by the Australian government due to a worldwide economic expansion, the Reserve Bank and the government respectively adopted  expansionary monetary policy and expansionary fiscal policy  contractionary monetary policy and contractionary fiscal policy  contractionary monetary policy and expansionary fiscal policy  expansionary monetary policy and contractionary fiscal policy  29  From 2009 to 2012, together with the loose fiscal and loose monetary policy mix adopted by the government and the Reserve Bank, there was a sustained rise in the world oil price  What were the effects of the policy mix together with the world oil price increase to economic equilibrium  AD shifted leftward  AS shifted downward  lower output and higher inflation in equilibrium AD shifted rightward  AS shifted downward  lower output and higher inflation in equilibrium AD shifted leftward  AS shifted upward  higher output and higher inflation in equilibrium AD shifted rightward  AS shifted upward  lower output and lower inflation in equilibrium AD shifted rightward  AS shifted upward  lower output and higher inflation in equilibrium 30  The impacts of the Global Financial Crisis were least severe in which country  Greece European countries Australia The United States 31  The financial crisis of 2007 08 started in the US, but quickly spread to other countries  What's a primary reason behind the spread  Foreign banks had bought securities based on US sub prime mortgages  Banks in developing economies are not exposed to US sub prime mortgage markets  European banks were taken into public ownership  Bank of China had lent massively to sub prime borrowers in the USA  32  Which of the following is NOT a factor responsible for the financial crisis from 2007 2008  Foreign banks had bought a large amount of securities based on US sub prime mortgages  The Chinese government buying too many US government bonds  Banks and other lenders were willing to issue risky mortgages and loans, many of which were sub prime mortgages  The lack of regulation and oversight of the shadow banking system as well as the overall financial system  33  Which of the following occurred in the build up to the GFC  The ratio of U S  households mortgage debts to house values increased significantly  The U S  housing market was booming and house prices grew strongly  Various financial innovations e g  the issuance of mortgage  or asset backed securities  All of the above 34  Following the onset of the global financial crisis in 2007 08, the US Federal Reserve and various other central banks conducted monetary policy easing  This involved them  purchasing mortgage backed securities  cutting the policy rates  buying government bonds  providing liquidity to banks and other financial institutions  35  Which of the following was NOT a countermeasure implemented to address the global financial crisis in 2007 08  Buying government bonds Allowing tax rebates for low and middle income US households Banning investment banks from taking deposits Cutting the policy rates 36  Australia's export sector remained strong during the financial crisis because  (There may be more than one correct answer ) Australia's exports to China grew strongly due to large demand from China  Australia did not trade with the US and other countries which were heavily affected by the crisis  the Australian dollar depreciated which made Australia's exports relatively cheaper  37  Which of the following did NOT contribute to the relatively good performance of Australian economy during the financial crisis  Australian banks mostly focused on domestic lending business and hence were not exposed to the subprime mortgage crisis  Australia's housing market did not experience any extended bubble or boom prior to crisis  Australian banks could borrow easily from the Reserve Bank which helped them cover their short term liabilities  38  Due to the mild impacts of the financial crisis on Australian economy, it was not necessary for the country to  (There may be more than one correct answer ) cut the cash rate to zero percent  cut back the interest rate  employ quantitative easing  39  According to our AS AD framework, if the Reserve Bank implemented an expansionary monetary policy but the commonwealth government chose to sit tight and do nothing in response to the GFC, what would have been the likely scenario  The shift in the AD curve would have been larger compared to when the government implemented an expansionary fiscal policy  Output would have expanded by more compared to when the government implemented an expansionary fiscal policy  The shift in the AD curve would have been smaller compared to when the government implemented an expansionary fiscal policy  40  Fill in the blanks  If the government runs a budget surplus in a given financial year, it must be the case that its spending is           than its revenue and its debt has          higher  increased higher  decreased lower  increased lower  decreased

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1. With regard to real GDP, which of the following statements is correct? It is defined as the value of final goods and services produced

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