1 Consider the monthly market for whole grain bread in Tasmania with an upward sloping supply curve and a downward sloping demand curve. The current equilibrium price of whole grain bread is $3 per loaf and 30,000 loaves are bought and sold each month.

a. Draw a diagram showing the monthly market for whole grain bread in Tasmania. Include and label the demand curve, supply curve, equilibrium price and quantity.

b. If the price per loaf was temporarily $4 explain how the price would return to the equilibrium price of $3 per loaf.

c. If the wages of bakers who make the bread increase, show and explain any changes in demand or supply and equilibrium price and quantity of whole grain bread in Tasmania.

d. If the price of margarine increases show in a new diagram and explain any changes in demand or supply and equilibrium price and quantity for whole grain bread in Tasmania. State any assumptions you are making about the relationship between whole grain bread and margarine.

Question 2

a. What is GDP? Explain the three methods that the Australian Bureau of Statistics uses to calculate GDP.

b. If in 2016 the CPI is 100 and nominal wages are $500 and in 2017 the CPI is 120 and nominal wages are $550. What is the level of price inflation from 2016 to 2017? Explain whether real wages have increased from 2016 to 2017?

c. Define structural, frictional and cyclical unemployment. Which of these types of unemployment do the 'long-term unemployed' belong?

d. Explain why the growth in real per capita GDP is a more appropriate measure of economic growth that nominal GDP for the whole country.

e. In an 'economic boom' what is likely to happen to inflation, unemployment and the participation rate? Explain why.