202103 ESSAY PRACTICE FOR EXAM

PAYOFF MATRIX QUESTIONS

B\A A A
MANGOES PEACHES
B MANGOES 5/14 10/10
B PEACHES 12/12 14/5

(a) Explain what As best response is if B Plants MANGOES AND what would be A's best
response if B plants PEACHES

(b) Does A have a dominant strategy? Explain.

(c) Explain what B's best response is if A plants MANGOES AND what would be B's best
response if A plants PEACHES

(d) Does B have a dominant strategy? Explain.

(e) Is there a dominant strategy equilibrium? Explain with reference to the total payoffs and
whether it is the best possible outcome or not for both players. Is it pareto efficient?

(f) Does the pursuit of self interest always result in the maximum payoffs? How does the
above game differ to a Prisoner's dilemma game?

LORENZ CURVE & INCOME DISTRIBUTION

(a) Explain what a Lorenz curve shows (1)

(b) Explain what the line of Perfect equality shows. (1)

(c) If the Lorenz curve moves further away from line of absolute equality income
distribution is (more/ less) _________ equal and closer to the line of absolute equality means
that income distribution is (more/ less) ________ equal.

(d) Explain the difference between market income and disposable income (2)

(e) Which shows a greater degree of income equality- the market income curve or the
disposable income curve? Explain by referring to both the values of the Gini Coefficients and
the position of each curve in relation to the line of perfect equality. (3)

(f) For disposable income- if A= 200 and B = 450 what would the value of the gini
coefficient be? (1) Gini- coefficient = A/A+B

(g) If Neil’s income = $100, Nick’s income is $80 and James’ income is $130 calculate the
gini coefficient.
(h) Explain how a FALL in unemployment would affect the shape of the Lorenz Curve. (1)

MONETARY POLICY

(a) What is Monetary policy

(b) Why is the cash rate important? (2)

(c) what is the difference between the cash rate and the interest rate?

(d) If the cash rate FALLS from 5% to 2% what type of monetary policy would this
represent? Expansionary or Contractionary? And would it result in an increase or
decrease in Aggregate Demand? (1)

(e) Explain how a FALL in the cash rate would affect the EXCHANGE RATE CHANNEL and
how it would then affect Aggregate Demand. (3) Refer to Demand for Australian dollar,
value of Australian dollar, whether it makes Exports and/ or Imports more expensive or
cheaper and the overall effect on X-M

(f) Explain how a fall in the cash rate would affect SAVINGS, INVESTMENT, Borrowing and
CONSUMPTION SPENDING and how it would then affect Aggregate Demand. (3)

(g) Describe the strengths and weakness (limitations) of Monetary Policy