Unit Code: MAE203 Unit Name: The Global Economy Final Examination T3, 2020

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DEAKIN UNIVERSITY
FACULTY OF BUSINESS AND LAW
Department of Economics
FINAL EXAMINATION TRIMESTER THREE, 2020

Unit Code: MAE203

Unit Name: The Global Economy
Estimated Reading Time: 15 minutes
Estimated Working Time: 2 hours
Estimated time for preparing and submitting your final responses to CloudDeakin Dropbox:
45 minutes

This is an Open Book Take Home Examination. You must upload your final responses as a
Microsoft Word Doc and a pdf file to CloudDeakin Dropbox within 24 hours from the start
time scheduled in the exam timetable.

This exam consists of FOUR questions. Answer all the questions. This exam paper carries a
total of 60 marks. (This is 60% of your total assessment in this unit).

Preparing and submitting your answers:

• Download the exam answer sheet word document and save it on your computer using the
file name: your-student-ID_unit-code; A hypothetical example: 123456789_MAE203.
• Input your answers in that document by typing your response below each question number.
Keep saving your work regularly as you make progress towards completing your exam.
• Please also insert appropriate diagrams and calculations in the answer document. Legibly
draw/hand-write relevant graphs or calculations on a piece of white paper, scan it and insert
it in the document along with your typed response to each question.
• For instructions on scanning and inserting images in the word document, please refer to
Exam Preliminary Information Document that was released on the unit site prior to the exam
period.
• Upload the completed exam answer sheet word document along with a pdf copy of the same
in the CloudDeakin Dropbox prior to cut-off time. Check that you have uploaded the correct
file.
• Late submissions will not be marked.
• If you encounter any technical issues with CloudDeakin, please contact the IT Service Desk
online or via phone (1800 463 888; +61 5227 8888 if calling from outside Australia) and
immediatelyrecord your ticket number as evidence of technical issues during the
examination period.
• In the unlikely event that you cannot upload your completed exam paper, email it as an
attachment to your unit chair helen.scarborough@deakin.edu.au within the submission
time.

NOTE: It is important that you work individually on this exam. Your submission will be
reviewed for the purposes of detecting collusion and/or plagiarism.

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 Unit Code: MAE203 Unit Name: The Global Economy Final Examination T3, 2020
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Answer all the questions below.

Question 1
The figure below from the Reserve Bank of Australia shows the movement in
the Australian dollar/US dollar exchange rate since Jan 2018. It shows the US
dollars per Australian dollar, for example 0.75 US dollars per one Australian
dollar.
Using a hypothetical foreign exchange market diagram, combined with your
broad knowledge of changes in the Australian or US economies during 2020,
illustrate and explain one plausible factor that may have contributed to this
rise during 2020 in the Australian dollar relative to the US dollar.

Source: Reserve Bank of Australia (2020) Exchange rates Available at:

(https://www.rba.gov.au/statistics/frequency/exchange-rates.html

(10 marks)

Question 2
Use an aggregate demand, short-run aggregate supply, potential GDP model
to show and explain the likely theoretical impact of the following events on
real GDP and inflation in both the short run and the long run. Assume the
economy is initially in a recessionary position.

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 Unit Code: MAE203 Unit Name: The Global Economy Final Examination T3, 2020
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a) The decision at the November 2020 board meeting of the Reserve Bank
of Australia to reduce the target cash rate to 0.1 per cent.

b) The signing by Australia in November 2020 of the Regional free trade

agreement known as The Regional Comprehensive Economic
Partnership (RCEP) that will build on Australia’s existing free trade
agreements with 14 other Indo-Pacific countries.

(10 + 10 = 20 marks)

Question 3
Consider the following table, which shows consumption (C), investment (I),
government expenditure (G) and net exports (NX) in a hypothetical economy
for various levels of real GDP.
Assume that the price level remains unchanged at all levels of real GDP.
All figures are in billions of dollars.

Real GDP C I G NX
500 525 300 150 -250
600 550 300 150 -250
700 575 300 150 -250
800 600 300 150 -250
900 625 300 150 -250

a) At what level of real GDP in this economy is short run economic

equilibrium achieved?

b) What is the marginal propensity to consume in this economy? Explain

your answer.
c) What is the multiplier in this economy?

d) If government expenditure increased by $40b what would happen to

real GDP?

e) Illustrate your answer to part d) in a suitable diagram.

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 Unit Code: MAE203 Unit Name: The Global Economy Final Examination T3, 2020
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(2+2+3+3+5=15 marks)

Question Four
Discuss two actual or potential Commonwealth government spending
programs that are likely to increase long term economic growth and explain
in each instance why they are likely to promote growth. In your answer identify
the factors contributing to long term economic growth that they are likely to
impact. Include a diagram in your answer, illustrating the impact of increased
long-term growth on aggregate demand and aggregate supply.

(15 marks)

END OF EXAMINATION

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