Question 1 BEGIN A NEW PAGE IN YOUR ANSWER BOOKLET (Carefully number your answers) a) i. Define 'opportunity cost' and provide one example. (2 marks) ii. Define rational decision making. (1 mark) b) List three (3) factors that will cause an increase in supply. (3 marks) c) Assume that more farmers have decided to produce apples. Explain the impact of this event on the Australian apple market. Your answer must include a relevant diagram to illustrate what happens to equilibrium price and quantity. (3 marks) d) Explain how the event described in part (c) will affect the market for apple juice. Your answer must include a relevant diagram to illustrate what happens to equilibrium price and quantity. (3 marks) e) Explain the macroeconomic impact of the event described in part (c) on the Australian economy. You should discuss the impact on GDP, unemployment and inflation. (3 marks)

Question 2 a) BEGIN A NEW PAGE IN YOUR ANSWER BOOKLET (Carefully number your answers) Define cyclical unemployment. Briefly explain what causes this type of unemployment. (3 marks) b) Does unemployment exist when the economy is at the full employment level of output. If so, briefly define what they are. (3 marks) c) Jane has just finished her studies and is now a fully qualified accountant. She has started to look for work but without luck. Is Jane defined as unemployed? If so, what type of unemployment does she fall under and why? (3 marks) d) What is inflation? What are two types of inflation that exist in the economy? (3 marks) e) What is marginal propensity to consume (MPC)? Explain what would happen to GDP if consumers felt positive about how the economy was going. Include a diagram in your answer. (3 marks)3

Question 3 BEGIN A NEW PAGE IN YOUR ANSWER BOOKLET (Carefully number your answers) Use the information in the table below to answer the questions that follow: $ million Exogenous consumption 300 Taxes 70 Government Spending 55 Investment 75 Exports 50 Imports 35 Potential GDP 1,300 MPC 0.7 a) Calculate the equilibrium level of income for this economy. By how much does exogenous expenditure need to change to achieve full employment? (Show your formula and workings). (3 marks) b) Use a fully labelled AE diagram to show the current state of this economy. (3 marks) c) Suppose the Federal Government plans to use fiscal policy to move the economy back to full employment. (i) Explain how it could achieve this through its own spending and taxes. (3 marks) (ii) Explain how changes in the budget, in part (i) would affect the level of aggregate demand, income, output and employment in the economy. (3 marks) (iii) Use an AE diagram to illustrate your answer to part (ii). (3 marks)4

Question 4 BEGIN A NEW PAGE IN YOUR ANSWER BOOKLET (Carefully number your answers) a) Define money and briefly explain the three (3) functions of money. (3 marks) b) Provide three (3) reasons why people wish to hold some of their wealth as money. (3 marks) c) Suppose there is a decrease in demand for Australian dollars. (i) Draw a fully labelled diagram of the Foreign Exchange Market in equilibrium. Show what would happen to this market following the decrease in demand mentioned above. (3 marks) (ii) What could cause a decrease in demand for Australian dollars? Explain the impact on the foreign exchange market, referring to your diagram from part (i). (3 marks) (iii) Explain how the change in the foreign exchange market, caused by the decreased demand for the Australian dollar will affect GDP, employment, and inflation in the Australian economy. (3 marks)