1.Education is an example of positive externalities with positive spill over effect. This is the rationale for government to support higher education to increase the public benefit and drive the education system towards its socially optimal level when market failure exists.

a) Using appropriate diagram/s, indicate the private provision of higher education and socially optimal level of higher education (without any funding/subsidies provided by the government).Explain why private market cannot provide the socially optimal level of education. (2 marks)

b) Suppose that Australian education sector was not providing socially optimal level of education. However, the Federal Budget 2019 announced a funding boost to pre and post-secondary schools, with non-government schools receiving 60%of school funding for 2019-20.Using appropriate diagram/s, illustrate the socially optimal level of higher education with government funding boost when the proposed reform pass through parliament and compare the outcome with previous equilibrium output of education.(4 marks)

2.Consumption expenditure is the largest component of GDP (expenditure method).Weakness in consumers' confidence in the recent years is alleged to be the main reason for slower economic growth and rising Australia's unemployment rate.Discuss the trend in gross domestic consumer expenditure and explain the effect of declining consumer expenditure on the equilibrium output using Keynesian Cross model.(3 marks)

3.Is Australia operating at a full employment level of output? What is natural rate of unemployment and current unemployment rate?Is this unemployment rate is considered to be cyclical unemployment?Explain three causes and consequences of cyclical unemployment. (4 marks)

4.Consider an economy with the following characteristics:

Consumption function is C = 100 + 0.8YD;

Planned investment:I = 40;

Government expenditure:G = 50;

The tax function:T = 0.3Y;

Exports of the country:X = 20

The import function: M = 10 + 0.06Y.

Assume there are no transfer payments and no autonomous taxes.

All variables are in billions of dollars. C is consumption expenditure; Y_D is disposable income; Y is real GDP; G is government purchases of goods and services; T is taxes; I is planned investment expenditure; X is exports, and M is imports. All fixed values are expressed in billion dollars.

a.Write the aggregate expenditure function and find out the value of equilibrium level of income of the economy (3 marks)

b.What is the value of consumption expenditure of the economy? (2 marks)

c.Define the concept of multiplier.Calculate the size of the multiplier of the economy if government expenditure falls from $50 billion to $40 billion.(2 marks)